Digital Dollar Debate Shifts as Central Banks Embrace CBDCs

CBDC, digital dollar, digital currency

Federal Reserve Board of Governors member Michelle Bowman said two weeks ago that the imminent launch of the FedNow real-time payments system makes a digital dollar unnecessary. It doesn’t matter.

Central bank digital currencies (CBDCs) have reached a critical mass, and enough major economies are challenging the greenback’s status as the world’s reserve currency (and all the power that comes with it) to shift the debate to matters of national prestige.

Saying that her “expectation is that FedNow addresses the issues that some have raised about the need for a CBDC,” Bowman said the service will “will help transform the way payments are made.”

Read more: Fed’s Bowman Says FedNow Makes Digital Dollar Unnecessary

That, and concerns about privacy and competition with the private sector — traditional banks as well as FinTechs and stablecoins — is the core of the “no” side of the argument.

The yes side, Federal Reserve Board of Governors Vice Chair Lael Brainard said in a July 30 speech, is that the “dollar is very dominant in international payments, and if you have the other major jurisdictions in the world with a digital currency, a CBDC offering, and the U.S. doesn’t have one … that just doesn’t sound like a sustainable future to me.”

The worst position to be in, she said in May, is for Congress to find itself telling the Federal Reserve in five years, “you need to catch up. China’s out there, the [European Central Bank] is out there.”

See more: Fed’s Brainard Says US Needs CBDC For International Use Cases

Then there’s House Financial Services Committee Chair Maxine Waters, who said July 27 that a stablecoin regulatory bill she hopes to get before the committee in the next few weeks will also “require the Federal Reserve to research and develop a central bank digital currency, so we remain competitive globally.”

Others, like Financial Services ranking minority member Patrick McHenry, are more skeptical and are concerned about privacy, bringing the Fed into retail banking, and stifling private-sector innovation. Then there’s the banking industry, which sees CBDCs as a huge threat to its business model.

Read more: Heyday or Doomsday? Regulators, Banks at Odds Over CBDCs

“There is a ‘don’t take my cheese’ opposition coming largely from the banks who view the CBDC as a potential disrupter of their very profitable payment systems,” Rep. Jim Himes, who is a CBDC supporter, told Politico.

Around the World

China’s e-CNY, or digital yuan, project is essentially ready to go, with the country going slow to ensure mass adoption is effectively in place before the launch, on which it has placed a lot of prestige.

See more: What China’s Slow Digital Yuan Rollout Says about CBDC Payments

The European Central Bank (ECB) has been an enthusiastic supporter of a digital euro, calling it “the holy grail” of cross-border payments.

“To ensure financial stability in this digital age, it is crucial that we all still have easy access to central bank money, which is the foundation of our currency,” ECB President Christine Lagarde, said in July. “The digital euro can achieve that.”

Read more: ECB’s Lagarde Says Embrace Digital Euro, Ditch Cryptocurrencies

The ECB’s crypto front man Fabio Panetta said in May that a digital euro could launch within four years.

India and Russia are planning CBDC launches sooner than that, with India saying a CBDC could launch as soon as 2023. Almost all the G20 members are working on a CBDC to some degree. Sweden, South Korea, Thailand, Malaysia, Saudi Arabia and Brazil are all fairly advanced, while Africa’s largest country, Nigeria, launched its eNaira CBDC almost a year ago. Both South Africa and Ghana have live pilots up and running.

And more than a few governments have been clear that challenging the dollar’s hegemony is a goal, with the ECB’s Lagarde saying a “digital euro would also help to avoid market dominance.”

The arguments that the U.S. will need a CBDC to defend the dollar’s place as the world’s reserve currency are winning, for reasons that have nothing to do with an actual need for a digital dollar or real-time payments. The financial superpower can’t afford to be left behind.

It won’t happen as quickly as in other places, but the case for a U.S. CBDC will be gaining strength every time another country launches one.

“You can’t stop the march of technology in time, and if you do, you become a backwater,” Digital Dollar Project Founder and former Commodity Futures Trading Commission (CFTC) Chairman Chris Giancarlo told Cointelegraph in June. “We in the United States have always been open to innovation, and we must be open to this innovation as well.”

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