CBDC Race: U.S. Leadership At Risk

With CBDC development a top priority in several countries, the US cautious approach to this new form of money is subject to controversy. Digital Dollar Project (DDP) urges the country to make a move, otherwise, it loses the race.

On Wednesday, Digital Dollar Project (DDP), a foundation dedicated to look into the idea of the US Central Bank Digital Currency (CBDC), issued an updated version of its white paper.

While international scope plays an important part in the new update, the case of the US remains a major focus.

The U.S. Has a Lot to Lose

Titled “Exploring a U.S. CBDC,” the original document was released in 2020, spotting light on the feasibility of the CBDC and the potential risks concerning users’ privacy.

As of Jan. 18, the number of countries under CBDC’s exploration has surged to 114 countries – a significant increase compared to May 2020.

Clearly aware of the race, the US, however, moves slowly given that other great economies are making headway in the competition.

The US is lagging behind other countries in CBDC exploration and development and its global approach to the CBDC is a “purely defensive posture,” the DDP warned. The Atlantic Council previously shared a similar opinion.

In light of CBDC’s remarkable global evolution, the DDP suggested that the US government to be increasingly engaged in the CBDC race, instead of following others, regardless of whether the country eventually moves forward with the issuance of a digital dollar.

The report states,

“In the coming CBDC future, the United States should actively lead global discussions on governance, interoperability, security, privacy, and scalability standards, rather than reacting to foreign CBDC decisions.”

A number of US CBDC projects are in the work but there has been no concrete conclusion on sight up to date. The New York Federal Reverse Bank announced 2 separate CBDC projects last year – both putting the test of wholesale CBDC as priority.

Perhaps Slow Is The New Fast

More than 80% of Central Banks are working on CBDCs, with a number of countries in the conceptual stage before introducing fully functional CBDCs.

While CBDC can be built on a variety of technologies, the usage of blockchain has permitted fiscal policy simplification, security enhancements, and even cross-border financial services. CBDCs continue to pique the interest of many governments throughout the world.

CBDC still faces concerns from competing with bank savings, according to experts. CBDC may result in the loss of monetary sovereignty and increased inequality between countries.

CBDCs may not be issued in some areas in the United States, but Bank of America thinks that central banks and governments will soon foster digital asset innovation in the private sector.

According to PWC’s research on CBDCs in 2022, just two nations have issued CBDCs thus far: the Bahamas and Nigeria. The example of Nigeria demonstrates that a cautious approach is required.

Move Development Globally

The eNaira, which will be launched in October 2021, would make Nigeria the first country to use CBDC in practice.

However, a year after its publication, the country’s CBDC adoption rate is less than 0.5%. Nigeria has sought to persuade citizens to transition to CBDCs, but the tactics appear to be ineffective. In truth, Nigeria has had a cashless policy in place since 2012.

CBDCs are being tested on a wide scale in major nations such as China, and India is likely to release CBDCs this year. China intends to expand the retail use of CBDC-e-CNY at the 2022 Winter Olympics, so great progress has been made in design and testing.

The study began in 2014, and the People’s Bank of China has launched multiple experiments at various phases throughout major cities since 2019.

As the economy advances toward digitization, e-CNY is expected to create a more secure, interoperable, and inclusive retail payment infrastructure, as well as to mitigate the fraudulent danger posed by cryptocurrencies and stablecoins.