Cryptocurrencies like Bitcoin and Dogecoin have dominated the news cycle in recent months. On the other hand, the rise of another type of digital currency has received less attention. Central Bank Digital Currency (CBDC).
Unlike Bitcoin, the CBDC is a government-issued, basically digital version of the currency of an existing country. But instead of putting it in your wallet, you save it on your phone.
The CBDC can become popular sooner than you think.According to the think tank Atlantic Council, 81 countries, which account for more than 90% of the world’s gross domestic product, are looking for digital currencies, and 5 countries have already launched digital currencies. And there are many more things to come. According to a survey by the Bank for International Settlements, countries that make up one-fifth of the world’s population may issue digital currencies in the coming years.
Leading the race Chinese digital yuan, This has already been tried with over $ 5 billion in transactions. In contrast, the United States is still in the research stage. The House Committee on Financial Services recently conducted a hearing on the CBDC’s promises and risks. There, several witnesses called on the United States to become more active. Julia Coronado of MacroPolicy Perspectives called on the United States to take a “leadership role.” CBDC.. “If we fail to act now, the United States will look out,” he added. Of the Atlantic Council Julia Friedlander.
In other words, if the United States waits too long, it may miss the opportunity to shape the future of digital money.
Why do Americans need to care? Well, partly because I’m used to a world dominated by the US dollar. However, the rise of the CBDC could challenge the order and threaten the US dollar’s position as the world’s reserve currency. It’s much easier for different countries to trade directly with each other, eliminating the need for the US dollar and SWIFT, the global financial messaging system.
In the CBDC world, “people will not spend much dollars,” predicted Michael Sung, a professor at Fudan University in Shanghai, who studies digital currencies, in an interview with me. “The dollar is dominant because it is a reserve currency. Everyone should use it for convenience. If you can settle directly between trading pairs, you don’t need a reserve currency.”
The dollar is also a tool for US foreign policy in that it can essentially keep sanctioned countries out of the dollar-based system. If the United States does not develop its own CBDC and other countries move forward, countries can trade with each other without using the SWIFT network that the United States can monitor, which may result in less information on cross-border transactions. I have.
The CBDC has the potential to give the United States a domestic advantage as well.Senate testimony on digital dollars, professor at Stanford University Darrell Duffy He said part of the appeal of the CBDC is in finding alternatives to the current costly and inefficient banking rail system. “Banks are also underinvesting in payment technologies that improve payment speed, interoperability, and programmability,” Duffy said.
Digital currencies can be programmed to be used in specific ways. For example, it can be used for foods and medicines, but not for tobacco or alcohol. Of course, many Americans will naturally be offended by the idea that the government knows how your digital money is being spent. And there is reason to fear that the CBDC will be a convenient way for authoritarian governments to monitor the transactions of individual citizens. But it doesn’t have to be the dominant model.
The United States can help set standards by developing privacy-centric digital currencies. “If this becomes a technology of the future, we want to make sure the United States brings democratic value,” said Chris Giancarlo, co-founder of the Digital Dollar Project, in an interview with me.
The digital dollar should also be a tool for specific use cases, such as providing government assistance in the case of a pandemic. It should not eliminate cash, which is still the most private form of money. It should also not be intended to replace non-governmental digital currencies such as Bitcoin, dollar pegstablecoin, or other cryptocurrencies that allow for more private transactions.
We may soon live in the world of the CBDC. And when America is on the sidelines, it can miss the opportunity to influence what the world looks like.
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