There have been countless discussions, and more than a few arguments, for and against the need for a U.S. central bank digital currency (CBDC). What’s been missing, to a large degree, is analysis about whether the general public actually wants a CBDC, or if they would even use one if they could.
That question deserves a good deal more attention than it’s been getting in the U.S., where issues like protecting the dollar’s position as the world’s reserve currency, lowering transaction costs, improving financial inclusion and fighting off the potential damage that some fear stablecoins could wreak on financial stability tend to be top of mind.
But if you look at two things, it becomes clear that the need to answer the question of who will use a digital dollar should become a bigger part of the discussion.
First, China is having a lot of trouble getting people to use the digital yuan, despite spending hundreds of millions of dollars on lotteries in major cities. These lotteries are offering hundreds of thousands of people a small but significant windfall if they download the digital wallet and spend the digital currency, also called e-CNY, in a few days.
Second, in the U.S., the adoption of Apple Pay is probably the closest, or at least most successful, approximation the U.S. has to a digital dollar payments channel — and its uptake has been abysmal.
So how successful is the American government — which can’t compel companies and consumers to accept and use a CBDC the way China does — actually going to be in making a digital dollar a successful payment rail?
Losing the Wallet
Last September, PYMNTS’ 2021 Mobile Wallet Adoption Report found that after seven years, only 6.1% of the iPhone users who have activated Apple Pay actually use it to pay for in-store purchases. That statistic also comes with some mighty big qualifications.
The survey found that Apple was “winning the wallet battle but losing the in-store war” to contactless cards. Just 4.5% of consumers were using mobile wallets of any kind, leaving Apple with just 1.7% of all in-store payments.
Now look at China, where the public has embraced smartphone-based digital wallets, with the two giants, AliPay and WeChat Pay, accounting for more than 90% of all mobile wallet purchases.
Despite having what amounts to a lock on mobile payments, both have added e-CNY payment functionality to their mobile apps this year. It’s hard to imagine American mobile wallet issuers being so accommodating if they had that kind of market dominance.
It’s probably worth noting that in February, the respected South China Morning Post ran an opinion piece titled “China’s digital yuan is not death knell for Alipay and WeChat Pay,” arguing that there’s room for all three. That suggests that a whole lot of observers believe that it is, particularly as a digital yuan run through a state-issued digital wallet would give the government far more insight and oversight of consumers’ spending habits.
Another big reason given in the U.S., European Union and elsewhere is fighting off the threat bankers believe stablecoins pose to financial stability if they allow people to bypass a nation’s currency for a private one.
Of course, there’s no similar concern about competition from stablecoins in China as it already banned all cryptocurrencies.
In the U.S., one of the biggest benefits of the widespread use of stablecoins has been their potential for faster, cheaper, around-the-clock payments. However, the Federal Reserve’s FedNow real-time payments system is rolling out soon, and The Clearing House’s Real Time Payments service is already in place.
Besides, if stablecoins are such a big threat, regulating them appropriately could solve a lot of the problems — which is something Congress and the administration are clearly getting ready to do.
When President Joe Biden issued an executive order in March instructing federal agencies to come up with a coherent cryptocurrency regulation framework in six months, the digital dollar got a prominent mention. However, stablecoins had already established their preeminent position in the political regulatory battle to come, even above the much broader and larger crypto market.
Saying the administration “places the highest urgency” on potential design and deployment options of a U.S. CBDC, it also called for a clear set of rules for stablecoins, which the administration had already recommended be issued only by banks. Earlier that month, a Treasury undersecretary told Congress that a dollar-pegged stablecoin could benefit the U.S. dollar.
It’s not looking at a ban, although how strict the eventual rules are will have a huge impact. As sides are already being drawn, with Republicans like Rep. Tom Emmer taking on the bank-issued only stablecoin rule suggested by the administration, it looks like stablecoin regulation will be on the table long before the decision or whether to create a digital dollar is.
So the question may well be, at that point, why bother?