Daily Management Review

Fitch warns of dangers of digital currencies to financial systems


International rating agency Fitch Ratings recognises the obvious benefits of digital currencies, but warns that there are risks that could harm financial systems, the agency said in a statement.

"The widespread adoption of central bank digital currencies (CBDCs) could damage financial systems if the risks associated with them are not addressed," the agency wrote.

Among the risks, Fitch cites the ability to quickly transfer funds into digital currency accounts from bank deposits, causing money to be withdrawn from bank accounts, as well as heightened cybersecurity threats as more points of contact are created between the central bank and the economy.

However, the agency says the key advantage of digital currencies lies in their potential to boost non-cash payments. Fitch adds that a key incentive for central banks in some emerging markets to investigate the feasibility of introducing CBDC is the ability to attract communities with limited access to banks into the financial system and to improve the cost, speed and sustainability of payments.

In the past year, a number of central banks have announced discussions about the possibility of launching their own digital currency. For example, the issue has been raised in Europe, China, Russia and Japan, among others. In particular, ECB head Christine Lagarde sees the possibility of launching a digital euro around 2025, while China wants to allow foreign athletes and visitors to use the digital yuan during the Beijing Winter Olympics in 2022.

source: fitchratings.com