The issue of CBDC or central bank digital currencies is one that has been gaining a lot of traction in the domains of financial regulators and the banking sector as a whole. It might generate not so much interest in the realm of public crypto awareness, but it is still a very relevant question for the future of global finance. Thus, however, it is more than relevant in the lives of ordinary individuals as well. While those are more and more ready to explore the questions of cryptocurrencies like bitcoin and what they can mean in their everyday lives, the same does not apply to CBDC.
Now, however, the US Federal Reserve is taking on a move that will move that discussion close to ordinary people in the country. It has released a paper that is asking for public comment on the possibility of a central bank digital currency in the United States. That is not a small undertaking, even in this very early initial phase that is completely non-committal not just for the Fed, but for the entire financial and regulatory space in the US. So, there are plenty of angles to that story and all of them also feed into the crypto ecosystem, whose members are carefully observing how the entire CBDC narrative is taking shape in the biggest economy in the world.
Risk and Benefit Assessment
The US Fed stated that the review will be put into place so that it can assess the opportunities and risks from the introduction of an official CBDC in the country. Wall Street Journal first reported on that development and Fed officials confirmed this quickly after. On Monday they also said that the Fed will release a paper which will solicit public assessment and comment on this matter. While it can be expected that the paper will draw in a whole range of comments and ideas, the main objective remains trying to gauge what risks come with a central bank digital currency and what positive opportunity this system offers.
In the age of social media, esports, and many similar undertakings, there is little doubt that both positive and negative elements will come in truckloads. However, the paper is looking to set these side by side for the first time in the US and also get a gauge of the overall public opinion when it comes to the prospect of an American CBDC.
Many individuals and organizations are very strongly in favor of a US-built CBDC. Out of those, the majority belong to the crypto industry in some shape or form. However, there are still many others who believe that such a decision would be disastrous for the economy but also for other countries, which would take on the same process for themselves under dubious circumstances. That would include a range of national CBDC which would be of drastically different capabilities and technical quality, which would all be nonetheless accessible across much of the world.
That would allow for the movement and interchange of currencies on an unprecedented level, generating possibilities for money laundering, financing of criminal or terror enterprises, and many more similar processes. Those possibilities would be of a scale that is nothing like the present range of options for such illegal activities. This possibility alone is enough for many to think twice about offering support to central bank digital currencies, even if the process of building such currency takes place in the US.
The Fed is apparently also taking a very cautious approach towards this issue, without dismissing it outright. Presently, it seems very unlikely that it will come to any quick decision, even if that would include saying a hard no to the entire deal. Also, many insiders are pointing out that there are wide differences inside of the Fed regarding the benefits and risks that come with a central bank digital currency. Also, initially, the US agency said that the report should be out in September.
That deadline passed, but now the new timeline envisions a small delay, at least for the time being. Fed Chair Jerome Powell said on September 22 that the report should be coming out soon. Still, he took even that opportunity to underline that a CBDC would be launched only if there was a set of tangible and clear benefits that outweigh all of the risks and costs. Coming to such a calculation would prove to be almost impossible in the present economic ecosystem in the US and there is a sense that the Fed knows this all too well. Still, it opted to go through the motions and take on the report and public assessment in any case.
On the surface, it would be easy to say that the concept of a digital USD is not happening anytime soon. However, there is one piece in that jigsaw that points to a different possibility and an outcome where a US CBDC would appear much sooner than expected. That stems from the similar venture currently taking place in China, the central financial institution of PBoC. There, a digital yuan is already functioning as a finalized system that already has the opportunity to undertake actual transactions in the real financial ecosystem. The full rollout of the same currency is thus a political decision, not one mandated by technical factors. Because of that, even Powell, among many negative remarks about the CBDC said that work on the digital dollar is a critical undertaking.
While the US system would at some point demand additional legislation from Congress to actually become a feasible network that is connected to the traditional USD, it is not something that the Fed is totally dismissing. Instead, it appears to be cautiously building a social awareness of that possibility, as well as the regulatory and legislative framework for it to happen. But, just like the success of the bitcoin BTC token was in many ways inevitable, so is the need for big countries to institute their own digital currency. If the US lags in that race too much, that would eventually become another geopolitical victory for China.