US Not in Race With China to Issue CBDC
The U.S. has made its stance clear on the country’s intention regarding the issuance of a central bank digital currency (CBDC): the world’s largest economy is not in a race to issue a digital version of the U.S. dollar and will do it when deemed appropriate. The clarity was presented by the U.S. Federal Reserve Chairman, Jerome Powell, at a panel discussion of digital payments hosted by the International Monetary Fund about a week after China, the acclaimed major front runner for a CBDC, completed a big phase in their digital yuan testing.
“We do think it’s more important to get it right than to be first and getting it right means that we not only look at the potential benefits of a CBDC, but also the potential risks, and also recognize the important trade offs that have to be thought through carefully,” Powell said at the event on Monday October 19. “We will have lots of conversations with industry and stakeholder engagement, and that’ll help us in our work on digital currencies and cross-border payments.”
Since China started testing the digital version of its currency as well as promoting its digital currency electronic payment (DC/EP) project for over a year, there have been critical discussions as to likely outcomes of China going solo on this initiative and how the US would respond to a somewhat competitive challenge between the two top economies particularly in the emerging technologies space.
There have even been suggestions that China’s pursuit of being the first major economy to issue a digital yuan – fueled partly by Facebook’s proposed issuance of Libra stablecoin last year – is part of a coordinated effort geared towards cutting back on the US dollar dominance as China spreads its economic tentacles globally particularly through its Belt and Road Initiative and exercises more control over its citizens’ spending.
Meanwhile, the disclosure by Powell – as the highest ranked official on fiscal policy matters in the U.S. – suggests that the U.S. dollar’s strength as a global reserve currency used by companies and central banks worldwide is a major factor for their special need to be cautious on the matter.
“There are a number of ways that a CBDC might improve the payments system, and it is mainly this area that motivates our interest,” Powell said. “We have a responsibility both to the U.S. and to the world that any steps taken for a U.S. digital currency be taken safely…”We’re absolutely committed to the soundness of the dollar into safe and efficient US dollar payment systems” which he says relies on the “reliable rule of law, strong and transparent institutions, deep financial markets and an open capital account.”
While he maintains that the Fed is open to collaborating with the private sector on a possible digital U.S. dollar but has not committed to actually launching its own digital currency, he also said that they “are committed to carefully and thoughtfully evaluating the potential costs and benefits” of a CBDC for the U.S. economy and payments system. The Fed is moving ahead with its plans to get the FedNow system running for real-time payments among financial intermediaries by 2023 or 2024.
In another development, the U.S. now recognizes Distributed Ledger Technologies, the technology that gave rise to Blockchain and cryptocurrencies, as one of the 20 technology areas that its departments and agencies “identified to the National Security Council staff as priorities for their missions” as part of a “Critical and Emerging Technologies list.”