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CBDC Development in US Lags Behind, But Is This a Bad Thing?

Last Updated March 15, 2024 8:31 AM
Eddie Mitchell
Last Updated March 15, 2024 8:31 AM
Key Takeaways
  • 134 countries are actively pursuing CBDC development.
  • The United States appears to have no interest in the creation of CBDCs in the near future.
  • China’s CBDC pilot has now reached 260 million wallets.

Research from American think tank, The Atlantic Council, has found that there is a “widening gap” between the U.S. and G7 central banks in countries such as the United Kingdom and Japan when it comes to developing CBDCs.

Arguably, the U.S. could be at risk of falling behind other CBDC efforts that could further fractionalize international payments, but there are some notable reasons why this may or may not be such a big problem for the United States.

CBDC Competition

The Atlantic Council’ss CBDC tracker , which follows CBDC developments across 134 countries, shows that most countries and currency unions are actively exploring CBDCs.

When it comes to the G20, all but Argentina are making major progress with CBDCs. With the likes of Australia, South Africa, Japan, and Brazil all in advanced/pilot stages of development.

China appears to be the most successful of all, with its CBDC pilot now reaching 260 million wallets in 25 cities, which has seen it leveraged in healthcare, transit, and crude oil purchasing scenarios, to name a few.

Another competitor worth paying attention to is that of BRICS, the intergovernmental organization comprising Brazil, Russia, India, China, and South Africa, all of whom are presently in the pilot phase of their CBDC projects.

But could this really put America on the backfoot? Or is their often-cautious approach serving them well in this instance?

Does the U.S. Want a CBDC?

At the moment, U.S. officials appear to have resigned from developing CBDCs for the time being, with much of the opposition to CBDCs stemming from concerns over privacy. On March 7, 2024, a Senate Banking Committee meeting  saw U.S. Federal Reserve Chair, Jerome Powell, inform lawmakers:

“People don’t need to worry about a central bank digital currency. Nothing like that is remotely close to happening anytime soon.”

Entertaining the idea, Powell informed the committee that if the Fed was to explore the creation of a digital dollar, then it would work with banks to manage accounts, and avoid any direct government monitoring of transactions. He adds:

“We would never entertain the idea of having government accounts that allow us to see all your transactions. That’s simply not something we would support, do, or even propose in the United States,”

For Powell, it’s a matter of following the evolution of the technology, and building on those findings “in a way that serves the public better.”

Republican presidential candidate Donald Trump, and Texas Senator Ted Cruz, have both publicly come out against CBDCs, with Cruz leading the charge to block the Whitehouse’s CBDC plans, and Trump declaring that he would “never allow” it.

Does the US Need a CBDC?

The Atlantic Council has previously argued  that CBDC fragmentation could be a major risk to the dominance of the U.S. dollar (USD) on the international market.

This is because CBDCs could be more reliable and flexible than relying on USD as the de facto currency for international payment systems and trade, therefore eroding the role of the dollar, and these are ideas that researchers from the Federal Reserve  seem to support.

However, the introduction of an American CBDC has the potential to bypass the role of commercial banks and disrupt financial models, such as bank deposits and lending activities.

Furthermore, an American CBDC would be huge on the international markets, and its introduction could also harm the U.S. dollar’s global dominance.

For emerging markets, CBDCs hold great promise in boosting financial inclusion and enhancing their respective economies, but when it comes to a nation as large and powerful as the U.S., the introduction of a CBDC could have far-reaching implications.

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