Bank of Canada research says a digital currency could reduce deposits held at commercial banks, thus increasing their costs of doing business. Furthermore, a central bank digital currency (CBDC) could raise the likelihood of bank runs—a risk to financial stability—according to a monetary policy expert.
“The CBDC would directly compete with bank deposits in the market for digital money. As a consequence, there are concerns that a CBDC could substantially crowd out bank deposits, which may undermine financial stability by raising the funding cost and reducing the profitability of the banking sector,” said the BoC in a staff working paper published Feb. 8.
