Central Bank Digital Currencies (CBDCs) have been a hot-button issue for almost two years now. China currently leads the way with asset development, and several countries have also followed its lead across the board.
For a long time, however, the United States and the United Kingdom have been relatively silent on the matter. Even though several other countries have encouraged them to join the race - especially to prevent the advent of a Chinese financial superpower - both countries have largely stayed out of the CBDC race.
However, that all appears to be changing. Several signs have pointed towards CBDC development for the U.S. and U.K., and it now seems like a case of when the two countries will ascertain plans towards digitizing their currencies - not if.
Everyone’s On Board
The United States has always teetered on the brink of CBDC development. Japan encouraged the country last year to pursue the endeavor, especially considering China’s success with its digital yuan in the past. The rationale was simple - China and the United States are locked in a battle for economic supremacy, and China could gain the upper hand with the digital yuan. If the United States wants to maintain its superpower status, a digital dollar might be the way to go.
This month, signs finally began to show that a possible CBDC could be on the way. On May 3rd, Accenture announced that it had partnered with the Digital Dollar Foundation to run trials on CBDCs in the United States. According to the announcement, the Digital Dollar Project will carry out five independent pilot programs over the next year. The project aims to get data that will help inform policy makers on how best to develop a domestic digital asset.
Three of the pilot programs are already set for the next two months. These tests will look to get data on a digital dollar’s sociological, functional, and economic benefits. Speaking with Al Jazeera, Christopher Giancarlo, the co-founder of the Digital Dollar Foundation and a former chairman of the Commodity Futures Trading Commission (CFTC), explained that the United States currently doesn’t have any knowledge about CBDCs and their nuances.
“There are conferences and papers coming out every week around the world on CBDCs based on data from other countries. What there is not, is any real data and testing from the United States to inform that debate. We’re seeking to generate that real-world data,” he said.
Despite this need, Accenture’s report pointed out that the Federal Reserve is being cautious about a digital dollar. With the dollar itself being the world’s reserve currency, Federal Reserve Chairman Jerome Powell believes that it would be much better to be right with a digital dollar than to be first. Still, Giancarlo believes that the United States can achieve both. With China moving quickly towards CBDC deployment, the United States needs to do the same.
The Federal Reserve itself also seems to share the need to move quickly. Later this month, Powell confirmed that the Federal Reserve Board will issue a discussion paper later this year on issues related to financial inclusion, payments, and data privacy. In his speech, Powell pointed out that cryptocurrencies don’t seem convenient to make payments. However, he seems more open to stablecoins and a CBDC.
“Our key focus is on whether and how a CBDC could improve on an already safe, effective, dynamic, and efficient U.S. domestic payments system,” said Powell. “We think it is important that any potential CBDC could serve as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks."
Powell added that designing a CBDC in the United States will need input from both government officials and the general public. With a CBDC’s implications in terms of consumer protection, financial stability, and data privacy, it is important for all hands to be on deck and for people to understand how they work.
CBDCs Becoming More Essential for the U.K.
Across the pond, the need for a CBDC now seems to be much clearer. This month, Jon Cunliffe, the Deputy Governor of the Bank of England, confirmed that access to a digital form of central bank money will become more crucial for preserving economic stability in the country.
Speaking at the OMFIF Digital Money Institute in London, Cunliffe pointed out that the coronavirus has accelerated the need for digital money. Based on trends surrounding financial innovation, the sentiment has moved significantly away from public money to private money, especially when making everyday payments.
In a recent survey from the Bank of England, about 70 percent of respondents pointed out that they were using less cash than they did before the pandemic. Most of them have reverted to options like contactless payments and online transactions.
Despite the shift to private money, however, Cunliffe pointed out that commercial bank money remains in circulation. With newer technologies set to change how people use and consume money, the government must make allowances available.