The United States of America has had a rather slow process in developing and testing its CBDC. However, this does not imply that they are completely disregarding its central bank digital currency (CBDC), also known as the Digital Dollar. With the advanced technology and money inflow in the US, the nation is set to be one of the biggest CBDC beneficiaries.
CBDC works in the States come under new management
The United States Department of the Treasury will now lead a working group that will hold regular discussions on the future launch of a digital dollar. Nellie Liang, undersecretary of the Treasury for domestic finance, stated on March 1 that the working group would consist of leaders from the Treasury, Federal Reserve, National Security Council, and other agencies.
According to Nellie Liang, the federal government’s efforts to develop a potential digital dollar are accelerating. She added that meetings between the agencies, as mentioned above, and White House offices will begin in the “coming months.”
She stated that discussions would likely center on whether a US CBDC would assist the US in maintaining its global financial leadership, national security, and privacy while preventing its use in unlawful financial transactions.
In a speech to the Atlantic Council, she outlined some of the potential benefits of a CBDC while making it clear that no decision has been made and that U.S. officials are “actively evaluating whether a CBDC is in the national interest.”
Liang specified that the announcement should not be interpreted as an indication that the Biden administration has fully embraced the concept of a digital dollar, reiterating that the Treasury and Fed are not yet convinced that a US CBDC is necessary.
The Fed is conducting technology research and experimentation to inform design choices so that it is positioned to issue a CBDC if it were determined to be in the national interest.
Investors and regulators’ concerns surrounding a CBDC
Some policymakers in the United States have expressed concern that widespread access to CBDC could threaten the traditional banking system. Nellie Liang echoes these concerns, stating:
There are also risks to retail CBDCs, including the potential for runs into a retail CBDC that could destabilize private-sector lending during stress periods.
The undersecretary of the Treasury also believes that an improved interbank payments system could eliminate the Digital Dollar’s appeal. In addition, the Fed is working to make widely accessible real-time payment systems for US banks.
Liang added that the US working group would collaborate with governments around the world on this matter. She said:
We have an interest in ensuring that CBDCs interact safely and efficiently with the existing financial infrastructure, that they support financial stability and the integrity of the international financial system […] Global payments should continue to reflect broadly-shared democratic values like openness, privacy, accessibility, and accountability to the communities that rely upon them.
Regardless of whether the United States adopts a CBDC, the Biden administration is eager to participate in the international planning required for the launch of multiple digital currencies.
Her comments come nearly a year after President Joe Biden signed an executive order directing a number of federal agencies, including the Treasury, to devote more attention to the study and potential regulation of digital assets, which can include a variety of crypto coins such as Bitcoin, fixed-value stablecoins, and digital money issued by central banks.
CBDCs take a hold of global economies
Major global economies are finalizing CBDC or already have operational frameworks. Liang stated that she anticipates the U.S. procedure to closely resemble the steps being taken in the United Kingdom, which is further along.
Last month, the United Kingdom published a paper indicating that the Bank of England will likely need to issue a digital pound at some point. In the meantime, the European Commission is preparing to publish a bill to support a digital euro in May.
Liang remarked that CBDCs could become a key component for stablecoin usage within the crypto industry.
It might be used as a backing asset for stablecoins, which could make it easier to transfer value among stablecoins in addition to supporting greater interoperability and choice.
Liang also mentioned some of the potential risks of establishing a digital dollar, such as the possibility of destabilizing runs in a retail version.
Separately, the Federal Reserve is attempting to determine the potential structure and use of the digital dollar in the event that the Biden administration and Congress give the Fed the go-ahead.
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