Monday’s report is the third in Deutsche Bank’s series that examines the future landscape for payments. As the first paper highlights, many existing cryptocurrencies, such as bitcoin, are too volatile to be used as a viable means of payment or as a store of value. The second in the series indicated the inherent benefits of cash mean it would endure as a payments method possibly for decades to come.
A digital currency could see widespread adoption within the next few years, a new report by Deutsche Bank suggests.
Published Monday, the Deutsche Bank report said digital currencies, while only a decade old, have already been shown to have the “potential to radically change payments, banking, central banking and the balance of economic power.”
“We believe a new digital currency could become mainstream within the next two years,” according to the report, with both China’s digital yuan initiative and Facebook’s Libra project expected to launch this year. The report said that could make digital currencies available to more than 1.5 billion Chinese citizens and 2.5 billion Facebook users – combined, more than half of the world’s population.
At its current adoption rate, cryptocurrencies are running parallel to the internet during its early years, the report reads. Should this continue, there could be more than 200 million blockchain wallets by 2030, up from the 50 million in 2020.
Although many of these same sentiments are echoed in the third paper, researchers also highlighted that digital currencies could combine the convenience of electronic payments with the privacy of cash payments. In the case of central bank digital currencies (CBDCs), they present new solutions for dealing with problems systemic in the global economy.
If CBDCs were fully rolled out, Deutsche Bank said, central banks could make interest-bearing accounts available to every citizen. That could “resolve many problems caused by the current fractional reserve banking system,” the report reads, and commercial banks would not be “vulnerable to bank runs”: governments would not be forced into a position where they have to bail out the “too big to fail” institutions as they had to do in 2008, researchers said.
As part of its research, Deutsche Bank surveyed 3,600 bank clients. Although restricted to a smaller percentage of the population, the report noted a “stark contrast” in attitudes between older and younger respondents.
While a larger share of the older generation had never held cryptocurrencies or understood how they worked, the report found a “large majority” of millennials – those born between 1981 and 1996 – had already traded cryptocurrencies and believed they would be beneficial for the overall economy.
Deutsche Bank said in 2017 the opportunities presented to businesses by blockchain technology were “huge,” predicting as much as 10 percent of global GDP could be tracked or regulated using the blockchain by 2027. In September 2019, the bank joined the Interbank Information Network (IIN), a blockchain-based payments initiative that uses JPMorgan’s JPMCoin stablecoin.