CBDCs and stablecoins: EY advises banks to 'prepare for what's to come'

One of the Big Four accounting firms, Ernst & Young (EY), has recommended that banks change their regulatory scope in response to the upcoming launch of a state-backed central bank digital currency (CBDC) and private stablecoins.

EY's Global Regulatory Outlook 2022 highlights the need for policy changes to help financial services firms overcome business uncertainty amid the mainstreaming of digital assets and cryptocurrencies. While acknowledging the uncertainty in the digital asset market, its report states:

"If customers could keep their money at the central bank, they wouldn't need retail banks and interest rate differentials for businesses would shrink dramatically."

EY advises banking firms to work with regional and national regulators to anticipate possible cryptocurrency adoption and actively assess its impact on their business. The report also points to digitization—alternative data sources and digital assets—as a potential factor influencing the regulatory environment:

"The macroprudential or international implications of having a retail currency for a major currency could be important for retail banks and dollarization in smaller economies. For this reason, most central banks are likely to look to wholesale versions."

EY highlighted the potential of CBDCs to complement or replace fiat currencies, and warned banks to consider the impact on their balance sheets amid possible interactions between CBDCs and stablecoins. EY acknowledged the difficulties in improving regulatory transparency and concluded:

"By knowing where regulation is headed, businesses can take proactive steps to prepare for what's to come."

Just last week, the Central Bank of Bahrain (CBB) partnered with US investment bank JP Morgan to pilot a test of a CBDC in the country.

As Cointelegraph reported, the CBB completed a digital payment test using Onyx, JPMorgan’s blockchain and cryptocurrency arm. Referring to the development, CBB Governor Rasheed Al Maraj said the trial is critical for the Bahraini government to address and potentially eliminate existing inefficiencies in the traditional cross-border payments industry.

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