In 2023, central banks across the world moved forward with various central bank digital currency (CBDC) pilots and exploratory exercises. But before they can implement their plans, they must first receive the green light from lawmakers.
With the US, UK and EU facing elections in the next 12 months, 2024 will be a crucial year for gauging whether or not CBDCs have popular support.
In certain circles, you could be mistaken for thinking that the global advance of CBDCs is inevitable. Central bankers tend to articulate the adoption of digital currencies as a question of when rather than if legislators will develop the necessary legal framework. But could their confidence be misplaced?
In the UK, a cross-party House of Lords committee tasked with assessing the potential benefits of CBDCs delivered a fairly damning verdict in 2022. The title of their report says it all – “Central bank digital currencies: a solution in search of a problem?” When a House of Commons committee convened to explore the issue recently, they opted for the same name, suggesting CBDC-skepticism spans both Houses of Parliament.
Significantly, one overriding theme emerged from peers and MPs of various political persuasions. With so few immediate benefits for ordinary people, why was the government and Bank of England channeling so much effort into developing CBDCs without evidence of any popular demand?
Across the English Channel, members of the EU Parliament expressed similar skepticism when they met to debate the European Central Bank’s proposals for a digital euro in April. As they did in the UK, lawmakers from across the political spectrum questioned whether CBDCs presented any real advantage over existing solutions given the cost of overhauling the entire EU’s entire monetary system.
“What can I do with a digital euro that I can’t do with current payment options?” asked Markus Ferber of the center-right European People’s Party. Meanwhile, Aurore Lalucq of the center-left Socialists and Democrats grouping remarked: “we’re jumping onto the digital bandwagon because it’s fashionable, and trying to deliver it with forceps.”
Unlike in Europe, US lawmakers have largely divided along partisan lines when it comes to their support or resistance to CBDCs.
Both in Washington and at the state level, Republicans have initiated various attempts to prevent the Federal Reserve from exploring CBDCs, or to block the recognition of any potential digital dollar as legal tender.
Fearing that a Democrat-controlled Congress and Whitehouse could force states to adopt the technology, in May, Florida passed legislation to restrict the use of CBDCs. Efforts are currently underway to introduce similar laws in other Republican-controlled states including Arizona, Alabama and Texas, while lawmakers in other red states have also floated the prospect.
On the other side of the aisle, Democratic House Representative Stephen Lynch has led efforts to initiate a CBDC pilot within the Treasury, introducing the ECASH Act in 2022 and forming the Digital Dollar Caucus in September 2023.
Alongside US Presidential and Congressional elections, Europeans will also vote in major elections in 2024. In the UK, current polling gives the Labour opposition a 10 to 20-point lead over the current Conservative government. Meanwhile, projections for the EU parliamentary elections in June suggest liberal parties could face significant losses.
On both sides of the Atlantic, the anti-CBDC narrative resonates with various libertarian viewpoints. But the bipartisan nature of the US debate doesn’t translate into the European context, where criticism has emerged from both the left and the right.
In other words, elections held in the next 12 months could decide whether CBDCs are rolled out without resistance, or whether central banks’ plans are blocked.
Should Republicans take control of the White House, it will almost certainly dash the digital dollar. Meanwhile, the European Commission appears to be largely supportive of the digital euro project, but the EU parliament has yet to adopt a formal position. Finally, in the UK, although CBDCs appear to be of little concern to voters at the moment, there is no guarantee that a new government will continue along the same lines as the current one.