As central bank digital currencies (CBDCs) continue their long migration from fanciful notion to nascent monetary tool to everyday financial instrument, the daily news emanating from the space can be a mishmash.
Here’s a look at recent events, including happenings in Switzerland, a pulled-back snapshot of how CBDCs are evolving worldwide, and one senator’s targeting of the digital currency in the United States.
‘Everything is Going Digital’
At the Bank of International Settlements’ Innovation Summit in Basel, Switzerland, on Tuesday, the president of the European Central Bank made her sentiments clear: CBDCs can help secure monetary policy at a time when the use of physical banknotes is in decline. Digital payments, Christine Lagarde said, have proliferated in recent years, spurred on, in part, by the pandemic.
“Everything is going digital,” she said in a pre-recorded conversation that was played at the summit. “People clearly are expressing a preference for it, and there is no reason why we, as a central bank, should not be exploring why digital cash can be of good use.”
Several central banks are looking into launching digital currencies.
The South China Morning Post reported that Ravi Menon, Managing Director of the Monetary Authority of Singapore, highlighted the role CBDCs can play in aiding cross-border payments.
“If I owe you 10 euros and I give you 10 euros, I’ve not only paid you, I’ve also settled,” Menon said. “If I sent it through the banking system, your bank and my bank have not settled. This is a huge problem. It is archaic in the modern age of the internet that our banking system works like this, where settlement is not instantaneous. … CBDCs can help to solve that.”
Getting There With CBDCs
The Atlantic Council, an American think tank, reports that 65 countries are in advanced development of CBDCs, with more than 20 central banks having launched pilot programs, a group that includes Brazil, Japan, and Russia.
In particular, the Atlantic Council cited the strides made by Australia, Brazil, Canada, China, India, Japan, Jordan, Kazakhstan, Laos, Montenegro, Philippines, Russia, Saudi Arabia, Turkey, United Arab Emirates, Ukraine, United Kingdom, and the United States.
The group’s CBDC tracker provides updates in 119 countries that together represent more than 95% of the world’s gross domestic product.
The United States is among the countries listed as being in the research phase of CBDC development. Sen. Ted Cruz of Texas would like to see that stopped.
Cruz vs. the Federal Reserve
Cruz’s bill, cosponsored by fellow Republican senators Mike Braun of Indiana and Chuck Grassley of Iowa, would block the Fed from establishing a direct-to-consumer CBDC.
Cruz cast the effort as one that favors entrepreneurs in decentralized cryptocurrency over government intrusion.
“The federal government has no authority to unilaterally establish a central bank currency,” Cruz said in the release announcing the introduction of the bill. “The bill goes a long way in making sure big government doesn’t attempt to centralize or control cryptocurrency and instead, allows it to thrive in the United States. We should be empowering entrepreneurs, enabling innovation, and increasing individual freedom—not stifling it.”
James Wester, Director of Cryptocurrency and Digital Assets at Javelin Strategy & Research, said the legislation backed by Cruz, Braun, and Grassley has gotten too far out in front of the effort to develop a central digital currency.
“We haven’t even reached a proof of concept or pilot phase for a digital dollar, so any piece of legislation aimed at central bank digital currencies at this point seems premature,” Wester said. “There are so many considerations in terms of how they can be designed and implemented that simply saying ‘no’ to a CBDC could have some unforeseen consequences for later technology developments.”