The Future of Central Bank Digital Currency in the US
Last month, the US House of Representatives made a significant decision by passing a bill that prevents the Federal Reserve from issuing a central bank digital currency (CBDC). This move was met with concerns from the American Banking Association regarding potential risks and costs to the US financial system. While these concerns are valid, it is crucial to consider a more balanced approach that allows for exploration and experimentation with appropriate safeguards.
The bill, known as H.R. 5403 or the CBDC Anti-Surveillance State Act, has now been forwarded to the Senate Committee on Banking, Housing, and Urban Affairs for further evaluation. It is essential for lawmakers to conduct a thorough examination of the advantages and disadvantages of CBDCs and consider the possibility of a pilot program that could help maintain the US’s position as a global financial leader.
A recent global survey conducted by the CFA Institute sheds light on the perspectives of finance professionals regarding CBDCs. This survey focuses on the demand side of the debate rather than just the preferences of central banks.
Currently, 134 countries and regions are exploring CBDCs, with 68 of them in the advanced phase of development, pilot testing, or launch. Major economies like China, Russia, India, Brazil, and South Africa are already piloting their own CBDCs, demonstrating the global momentum towards digital currencies.
Benefits of CBDC
Introducing a CBDC in the US could lead to increased efficiency in the payments market, reduced transaction costs, and enhanced resiliency. Furthermore, CBDCs offer programmable money capabilities through smart contracts, which could revolutionize financial transactions.
CBDCs also have the potential to improve financial inclusion for underserved populations, optimize fiscal and monetary policies, enhance financial stability, and mitigate the impact of domestic and global financial shocks.
According to a Bank for International Settlements (BIS) paper, CBDCs could effectively smooth the effects of financial shocks and reduce exchange rate volatility, thus benefiting both local and global economies. The acceleration of payments and transfers is cited as a key reason to support the launch of a CBDC among finance professionals.
Concerns and Solutions
While there are legitimate concerns about CBDCs, such as the potential disruption to traditional banks and vulnerability to cyber-attacks, it is possible to address these issues through legislative safeguards. Clear and enforceable regulations can be established to safeguard the stability and privacy of a US CBDC.
Instead of an outright ban, a more prudent approach would be to set up a framework that balances innovation with risk management. By embracing innovation and establishing safeguards, the US can navigate the evolving landscape of digital currencies while maintaining its financial leadership position.