Banks represent the commercial financial infrastructure in any given economy and therefore should not be under the threat of being phased out by the development of central bank digital currencies, according to JPMorgan’s strategist Josh Younger.
Younger said in a note on Thursday that CBDCs hold massive potential in addressing economic inequality by introducing new retail loans and payment channels. However, their development should take care not to cannibalize the existing banking infrastructure, since this would lead to 20% to 30% destruction of their funding base which comes directly from investments by commercial banks.
Retail CBDCs Will have a Smaller Market Share Than Banks
According to JPMorgan, while CBDCs will accelerate financial inclusion further than banks have been able to, they can still do so without significant disruption of the structure of the monetary system. The reason behind this being that the majority of people who will benefit the most from CBDCs have less than $10,000 in their checking accounts.
Such balances, Younger said, only represent a small share of the total funding, meaning that banks would still hold the majority of shares.
“If every last one of those deposits were to hold only retail CBDC, it would not have a material impact on bank funding.”
According to the most recent National Survey of Unbanked and Underbanked Households by the Federal Deposit Insurance Corporation (FDIC), over 6% of U.S Households (14.1 million American adults) are unbanked.
The survey also said that while the rates have been declining over time, they still remain high in communities still experiencing systemic injustice and income inequality, the primary group that would benefit from CBDCs.
“Black (16.9%) and Hispanic (14%) households for example are around 5 times more likely to be unbanked as White households (3%). But the strongest indicator of unbanked people is income levels.”