The Case For Central Bank Digital Currencies in the United States

Central Bank Digital Currencies

Central Bank Digital Currencies: A Global Perspective

The concept of Central Bank Digital Currencies (CBDCs) has been gaining traction for some time. Since the advent and breakout of cryptocurrencies like Bitcoin (BTC), and Ethereum (ETH) in the late 2000s, the world has adopted these currencies in several ways – giving rise to the acceptance of decentralized finance (DeFi). However, due to their decentralized nature, many countries are now showing interest in starting their own digital currency projects.

Currently, there are close to 50 countries that have either launched or are in the process of developing frameworks for their digital currencies. Some notable CBDC (Central Bank Digital Currencies) initiatives include countries like Nigeria, China, Singapore, Ukraine, Saudi Arabia, United Arab Emirates (UAE), European Union, South Korea, Thailand, Australia, Canada, Iran, and Turkey. A few countries have already entered cross-border partnerships to make use of their CBDCs.
Central Bank Digital Currencies

CBDC Projects and Partnerships

The following projects highlight how this concept is gaining widespread acceptance:

  • Project Aber between UAE and Saudi Arabia
  • Project Jasper between Canada, United Kingdom, and Singapore
  • Project Dunbar between Singapore and Australia
  • Project Jura between France and Switzerland
  • Project Onyx/Multiple wCBDC between France and Singapore
  • Project Helvetia between Switzerland and BIS
  • Multiple CBDC Bridge mBridge between Thailand, China, Hong Kong, and UAE

While there are countries that are working towards such projects, over 40 countries have their core focus on researching how beneficial CBDCs will be for them and how they will develop the necessary infrastructure. The United States is one of these countries.

United States’ Transition Towards CBDCs

The US has generally been slow in deciding on this transition. Along with the UK, they are the furthest behind in CBDC development as compared to other economies forming the Group of Seven (G7).  The execution of a ‘digital dollar’ could also seismically affect the crypto scene and open the concepts of digital currencies and blockchain to a much wider population.
While advocates of CBDCs have categorically stated that Fed-supported digital money would assist with guaranteeing the dollar’s predominance, much like China’s push ahead with their own CBDC, certain groups, including some Wall Street trade groups have cautioned how such a move could potentially backfire.
Central Bank Digital Currencies

The Wall Street Perspective

The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers.  BPI has taken the position that a digital dollar would evaporate a vital source of financing for banks. They argued that by drawing in deposits from banks, especially during a time of monetary pressure, a CBDC probably would subvert the business banking framework in the United States, and seriously choke the accessibility of credit to the economy.

Moreover, they have also argued that placing a cap on the size of CBDC records to restrict the aftermath is probably not going to help a lot. The ABA anticipated that a cap of $2,500 would in any case empty $446 billion in stores out of conventional banking. A $10,000 breaking point would bring about more than $1 trillion in stores leaving the framework, the gathering said.

Central Bank Digital Currencies

Federal Reserve’s Perspective

Today in the United States, Federal Reserve notes (i.e., fiat cash) are the main sort of national bank cash accessible to Americans. Like existing types of cash, a CBDC would empower the everyday Americans to take a step towards the adoption of digital payments via digital currencies.

As a responsibility of the Federal Reserve, a CBDC would be the most secure digital asset – such assets would also limit the credit and liquidity risks that may be associated with other forms of digital currencies. While the Federal Reserve has not made a concrete decision on whether it should pursue CBDCs or not, they certainly have been looking into the potential possibilities along with the risks and benefits associated with them.

In January 2022, the Federal Reserve Board (FRB) launched a discussion paper to investigate the upsides and downsides of making a national bank digital dollar (CBDC) for the United States called Money and Payments: The U.S. Digital Dollar in the Age of Digital Transformation. The purpose was to encourage remarks from people while staying neutral to the matter itself. The Fed explained that the paper was just an underlying move towards deciding whether a CBDC could further the domestic payments system from the traditional system to a digital framework while also maintaining security protocols.

Current News

In more recent updates, U.S. Central bank Chair Jerome Powell stated that Congress will ultimately get direction from the Fed on how it could carry out a national bank computerized cash (CBDC

Talking before the U.S. House Committee on Financial Services, Powell said that he believed it was something they all truly needed to investigate as a nation. He also added that the possibility of a CBDC’s issuance ought not to be something partisan. In his statement, he also mentioned that the Fed had been doing a great deal of research and effort towards completing their knowledge and understanding of CBDCs and that when it was time, it would be Congress’ responsibility to prepare and pass a legislature that would allow the implementation of CBDCs.