ADOPTING CBDC COULD DESTABILIZE BANKS, HELP HOUSEHOLDS, US TREASURY STUDY SAYS

Last updated: June 19, 2025, 19:32 | Written by: Arthur Hayes

The potential for central bank digital currencies (CBDCs) to reshape the financial landscape is a topic of intense debate. Animals and Pets Anime Art Cars and Motor Vehicles Crafts and DIY Culture, Race, and Ethnicity Ethics and Philosophy Fashion Food and Drink History Hobbies Law Learning and Education Military Movies Music Place Podcasts and Streamers Politics Programming Reading, Writing, and Literature Religion and Spirituality Science Tabletop GamesWhile proponents tout their potential to modernize payment systems, improve financial inclusion, and streamline government aid distribution, concerns linger about their impact on established institutions. Authorities themselves started to realise that introduction of CBDC would destabilize banks Inna E. on LinkedIn: Adopting CBDC could destabilize banks, help households, US Treasury study Skip to main content LinkedInA recent study by the U.S.Treasury Department has added fuel to this discussion, suggesting that the full integration of a CBDC or even a stablecoin into the economy could have a destabilizing effect on banks, even as it potentially benefits households.This research delves into the complex interplay between innovation and financial stability, exploring the scenarios where a digital dollar could both empower consumers and create vulnerabilities within the banking sector. Skip to content. About Us; Markets Menu Toggle. BTC; ETH; BCH; LTC; AAVE; BAND; BAT; COMP; DAI; ENJ; GRT; LINK; MANA; MATIC; OGN; SNX; SUSHIThe implications of this study are far-reaching, prompting a deeper examination of the risks and rewards associated with embracing digital currencies.This article will delve into the specifics of the Treasury's findings, exploring the potential consequences for banks, households, and the broader economy, while also considering the experiences of other countries experimenting with CBDCs.

Understanding Central Bank Digital Currencies (CBDCs) and Stablecoins

Before diving into the Treasury's study, it’s crucial to understand what CBDCs and stablecoins are, and how they differ from existing digital payment methods.

What is a CBDC?

A Central Bank Digital Currency (CBDC) is a digital form of a country's fiat currency, issued and regulated by its central bank.Think of it as a digital dollar (in the US context) backed and controlled by the Federal Reserve. 785 subscribers in the Satoshi_club community. Satoshi Club is a community that connects blockchain companies with a large pool of cryptoUnlike cryptocurrencies like Bitcoin, CBDCs are centralized and their value is stable, as they are pegged to the national currency.A CBDC aims to offer the convenience and efficiency of digital payments while maintaining the stability and trust associated with traditional currency.

What are Stablecoins?

Stablecoins are cryptocurrencies designed to minimize price volatility.They achieve this by being pegged to a relatively stable asset, such as the US dollar or gold.Some stablecoins are backed by reserves of the asset they are pegged to, while others use algorithmic mechanisms to maintain their stability. Fully integrating a stablecoin or central bank digital currency into the economy would destabilize banks but improve household welfare, a study released by a United States Treasury division has claimed.However, the stability of stablecoins is not always guaranteed, and their regulatory landscape is still evolving.

Key Differences: CBDCs vs. When integrated into the economy, a central bank digital currency or stablecoin would compete with bank deposits to the public Adopting CBDC Could Destabilize Banks, Help Households, US Treasury Study Says - Currency InsiderStablecoins

While both CBDCs and stablecoins offer digital alternatives to traditional money, key differences exist:

Issuer: CBDCs are issued by central banks, while stablecoins are typically issued by private companies.
Regulation: CBDCs would be subject to central bank regulation, while the regulation of stablecoins is still under development.
Credit Risk: CBDCs carry no credit risk, as they are liabilities of the central bank. Stablecoins carry credit risk related to the issuer and the assets backing the coin.

The U.S.Treasury Study: Key Findings

The Treasury Department's study, conducted by the Office of Financial Research (OFR), examines the potential impact of widespread adoption of CBDCs and stablecoins on the U.S. financial system. Fully integrating a stablecoin or central bank digital currency (CBDC) into the economy would destabilize banks but improve household welfare, a study released by a United States Treasury division hasThe core finding highlights a potential trade-off: improved household welfare versus increased instability in the banking sector.

Destabilizing Effect on Banks

The study suggests that the introduction of a CBDC could lead to a significant outflow of deposits from commercial banks. Fully integrating a stablecoin or central bank digital currency (CBDC) into the economy would destabilize banks but improve household welfare, Adopting CBDC could destabilize banks, help households, US Treasury study saysThis is because a CBDC would offer a risk-free, liquid, and potentially interest-bearing alternative to traditional bank accounts. Fully integrating stablecoins or central bank digital currencies into the economy would destabilize banks but improve household welfare, according to a study released by the U.S. Treasury Department. It found that damage to the banking sector from digital currencies could be significant during times of stress.In times of economic stress, people might flock to the safety of a CBDC, withdrawing their deposits from banks and potentially triggering a liquidity crunch.

The implications of such a deposit outflow are significant:

Reduced Lending Capacity: Banks rely on deposits to fund loans. Fully integrating a stablecoin or central bank digital currency (CBDC) into the economy would destabilize banks but improve household welfare, a study released by a United States Treasury division has claimed. The harm to banking caused by the digital currencies could be significant in times of stress, it found.A decrease in deposits would limit their ability to lend to businesses and consumers, potentially hindering economic growth.
Increased Funding Costs: To replace lost deposits, banks might have to rely on more expensive funding sources, such as wholesale borrowing or selling assets.This would increase their funding costs and potentially reduce their profitability.
Financial Instability: In extreme scenarios, a large-scale deposit run could threaten the solvency of weaker banks, potentially leading to a financial crisis.

The study simulates a stress scenario where the presence of a CBDC causes a withdrawal of deposits from banks. 17K subscribers in the CryptoCurrencyClassic community. The unofficial Wild Wild West of r/CryptoCurrency. CryptoCurrency Memes, News andThe simulation shows that banks are forced to use less desirable funding sources, even if the situation doesn't necessarily cause a full-blown crisis.This highlights the vulnerability that CBDCs could introduce into the banking system.

Improved Household Welfare

Despite the potential risks to banks, the Treasury study also acknowledges that a CBDC could benefit households in several ways:

Greater Financial Inclusion: CBDCs could provide access to financial services for unbanked and underbanked populations, who often face barriers to opening and maintaining traditional bank accounts. We study a stress scenario in which the presence of a CBDC causes a withdrawal of deposits from banks, forcing them to use less desirable funding sources despite not necessarily precipitating a crisis.This could lead to greater participation in the economy and improved financial well-being.
Faster and Cheaper Payments: CBDCs could enable faster and cheaper payments, both domestically and internationally.This could benefit consumers and businesses alike, reducing transaction costs and improving efficiency.
Direct Government Payments: CBDCs could allow the government to distribute benefits and stimulus payments directly to citizens, bypassing intermediaries and ensuring that funds reach those who need them quickly and efficiently.This was especially relevant during the COVID-19 pandemic.
Competition for Bank Deposits: By competing with bank deposits, a CBDC could force banks to offer more competitive interest rates and fees, benefiting consumers.

CBDCs and Authoritarian Governments

While the Treasury study focuses on the economic implications of CBDCs, other research highlights the potential for authoritarian governments to leverage CBDCs for increased control and surveillance.A study by Nottingham Business School (NBS), part of Nottingham Trent University, analyzed 68 countries and found that more authoritarian governments are more inclined to adopt CBDCs due to their centralized power structures.

The centralized nature of CBDCs allows governments to track transactions, monitor spending habits, and potentially restrict access to funds.This raises concerns about privacy, freedom, and the potential for political repression.

China, for example, has been a leader in developing a CBDC, known as the digital yuan or e-CNY. Fully integrating a stablecoin or central bank digital currency into the economy would destabilize banks but improve household welfare, a study released by a United States TreasuryWhile the official goals are to improve payment efficiency and financial inclusion, some observers believe that the digital yuan could also be used to strengthen government control over the economy and society. Adopting CBDC could destabilize banks, help households, US Treasury study says When integrated into the economy, a CBDC or stablecoin would compete with bank deposits to the public benefit, at least until a financial crisis.The People's Bank of China has also prioritized a wholesale CBDC to promote the international role of the yuan.

Mitigating the Risks and Maximizing the Benefits

The Treasury study highlights the need for careful consideration and proactive measures to mitigate the risks associated with CBDC adoption while maximizing its potential benefits. Adopting CBDC could destabilize banks, help households, US Treasury study saysSeveral strategies can be employed:

Limiting CBDC Holdings: Implementing limits on the amount of CBDC that individuals and businesses can hold could help to prevent large-scale deposit outflows from banks.
Tiered Interest Rates: Offering different interest rates on CBDC holdings could discourage excessive accumulation and encourage the use of CBDCs primarily for payment purposes.
Bank Capital Requirements: Strengthening bank capital requirements could help banks to withstand potential deposit outflows and maintain their lending capacity.
Improved Liquidity Management: Enhancing banks' liquidity management practices could help them to better manage deposit fluctuations and avoid liquidity crunches.
Privacy Protections: Implementing strong privacy protections for CBDC users is crucial to address concerns about government surveillance and protect individual freedoms.This is a critical element that must be addressed for widespread adoption in democratic societies.

Examples of Countries Exploring CBDCs

Several countries around the world are actively exploring or piloting CBDCs. 7.6M subscribers in the CryptoCurrency community. The leading community for cryptocurrency news, discussion, and analysis.These include:

China: As mentioned earlier, China is a leader in CBDC development, with its digital yuan already being tested in several cities.
The Bahamas: The Bahamas launched its CBDC, the Sand Dollar, in 2020, becoming one of the first countries to issue a nationwide digital currency.
Nigeria: Nigeria launched its CBDC, the eNaira, in 2021, but its adoption has been slow.
The European Union: The European Central Bank (ECB) is exploring the possibility of launching a digital euro.
The United States: The Federal Reserve is researching the potential benefits and risks of a U.S. CBDC but has not yet made a decision on whether to issue one.

The experiences of these countries can provide valuable insights into the challenges and opportunities associated with CBDC adoption.

The Future of Digital Currency

The debate surrounding CBDCs is likely to continue for years to come. A CBDC is a digital form of government-issued money, backed and regulated by a nation's central bank. The research, led by Nottingham Business School (NBS), part of Nottingham Trent University, analyzed 68 countries and revealed that more authoritarian governments are leading the charge on CBDCs due to centralized power structures which allow these governments to quickly implement tightlyAs technology evolves and the global financial landscape changes, the potential benefits and risks of digital currencies will need to be carefully weighed.The U.S.Treasury study provides a valuable contribution to this discussion, highlighting the potential trade-offs between innovation, financial stability, and privacy.Ultimately, the decision of whether or not to adopt a CBDC will require a careful balancing of competing interests and a thorough understanding of the potential consequences.

Key Considerations for Policymakers

Policymakers face a complex challenge in navigating the future of digital currency.Here are some key considerations:

Financial Stability: Ensuring that the introduction of a CBDC does not destabilize the banking system is paramount. A study released by the Office of Financial Research (OFR) on 22 March claimed that fully integrating a stablecoin or central bank digital currency (CBDC) into the economy would destabilize banks while improving household welfare.This requires careful planning, robust regulation, and proactive risk management.
Financial Inclusion: A CBDC has the potential to expand access to financial services for underserved populations, but this requires addressing issues such as digital literacy and access to technology.
Privacy: Protecting the privacy of CBDC users is essential to maintain public trust and prevent potential abuses. Adopting CBDC could destabilize banks, help households, US Treasury study says Grand Master CBDC stablecoin United States MaStrong privacy safeguards must be built into the design of the CBDC.
Innovation: A CBDC should be designed to foster innovation in the payments ecosystem, rather than stifling it.This requires creating a level playing field for private sector innovation.
International Coordination: As more countries explore CBDCs, international coordination will be crucial to ensure interoperability and prevent cross-border risks.

Frequently Asked Questions (FAQs)

Will a CBDC replace cash?

It is unlikely that a CBDC would completely replace cash.Cash provides anonymity and serves as a backup payment method in case of technological failures. The U.S. Treasury looks at the potential effects of a CBDC after its successful adoption. Adopting CBDC could destabilize banks, help households, US TreasuryMost proposals suggest a CBDC would coexist with cash and other payment methods.

How would a CBDC affect my bank account?

A CBDC could potentially compete with bank accounts, leading to lower deposit rates or changes in bank services. Fully integrating a stablecoin or central bank digital currency into the economy would destabilize banks but improve household welfare, a study released by a United States Treasury division has claimed. The harm to banking caused by digital currencies could be significant in times of stress, it found.However, banks could also adapt by offering new products and services to attract and retain customers.

Is a CBDC the same as cryptocurrency?

No.A CBDC is issued and regulated by a central bank, while cryptocurrencies are typically decentralized and unregulated. CBDCs are also designed to be stable in value, while cryptocurrencies can be highly volatile.

Conclusion

The U.S. Ammu. I am a full-fledged blogger. I am conversant in writing on several niches. Have written at least 150 original content posts. Info on Career Info on Courses Info on Prominent FigureTreasury study serves as a critical reminder that the adoption of CBDCs presents both opportunities and risks.While a digital dollar could potentially improve household welfare through greater financial inclusion and faster payments, it also poses a threat to the stability of the banking system. Consequently, the People s Bank of China began to prioritise work on a wholesale CBDC (interview 2), also to promote the international role of the yuan for global trade, investments related to the Belt and Road Initiative and central bank swap lines with other central banks (DiLeo et al. Citation 2025).Policymakers must carefully weigh these competing interests and implement appropriate safeguards to mitigate the risks and maximize the benefits.The path forward requires a thoughtful and balanced approach, ensuring that innovation does not come at the expense of financial stability and individual privacy.The conversation around adopting CBDC needs to continue to evolve as these digital instruments are further developed and scrutinized.