Digital currencies could help boost the economic activity and growth of developing countries despite the risks therein, says Bank of America.
In a research report, Bank of America (BofA) said that both central bank digital currencies and private digital currencies hold ‘a lot of potential’ for increasing financial inclusion, a major issue in emerging market countries.
According to David Hauner, Head of Emerging Market Cross-Asset Strategy and Economics for EMEA, Bank of America:
“Digital currencies have the potential to address many practical constraints on financial services in poor countries.
More than 50% of adults in developing countries do not have a bank account. Digital currencies could substantially reduce transaction costs and allow more economic activities. This would be a major boost to economic growth.”
– Head of Emerging Mrkets, Bank of America
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Hauner pointed to the tendency of more active bitcoin trading activity in emerging markets showing a clear use case for cryptocurrencies as a substitute for bank accounts.
Some of the countries highlighted in the report include:
Hauner also pointed to a reduction in cross-border payment costs as one of the benefits of crypto.
However, Hauner cautioned their use saying:
“Easier access to alternative digital currencies is also likely to increase the volatility of domestic money supply and the exchange rate.
Easier access to alternatives also raises the risks of rapid shifts of liquidity out of (or into) the currency and the banks which can magnify macro volatility in already less stable countries.
Higher macro volatility would then reduce the effectiveness of policies and undermine the long-term rate of growth,”
– Head of Emerging Markets, Bank of America
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