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New CBDC report highlights potential opportunities and challenges of introducing a Central Bank Digital Currency in the U.S.

  • CBDCs are the digital equivalent of central bank-issued paper currencies.
  • A report published by The Clearing House outlines considerations for policymakers if a CBDC is to be introduced in the U.S.

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New CBDC report highlights potential opportunities and challenges of introducing a Central Bank Digital Currency in the U.S.

Around the world, central banks in countries such as China, Sweden, South Korea, Japan and Switzerland have started researching, experimenting with, and testing the launch of Central Bank Digital Currencies, which are the digital equivalent of central bank-issued paper currencies. Although CBDCs use the same general principles and technology as cryptocurrencies, there’s one crucial difference. While digital tokens such as Bitcoin and Ether are decentralized with no central entity in charge, CBDCs are centralized in that central banks can control certain aspects such as their supply, as well as who gets access to their blockchain network.

Increasingly, it looks like the U.S. may also be looking to establish a digital U.S. dollar. The Federal Reserve is working with the Massachusetts Institute of Technology to research and experiment with different designs for a digital currency, while Congress is looking towards a CBDC as a means to address a range of policy objectives.

The Clearing House, the oldest banking association and payments company in the U.S., has just published a report on a potential U.S. CBDC. Titled ‘On the Road to a U.S. Central Bank Digital Currency – Challenges and Opportunities’, it identifies potential CBDC design options and implementation choices, and highlights some important considerations for policymakers.

Stephanie Heller, executive vice president and general counsel of The Clearing House, says that so far, most of the discussion relating to a possible U.S. CBDC has taken place in the abstract, with CBDCs presented as a solution to everything from financial inclusion to monetary policy. However, different policy objectives will require different design choices.

“This report focuses the discussion on practical policy considerations, design choices, and the implications of certain key options in order to assist policymakers in identifying and weighing the real costs and benefits of a U.S. CBDC," said Heller.

The report outlines a number of considerations that it says policymakers, legislators and central banks need to address before they can develop or issue a stable and successful CBDC in the U.S. A detailed discussion of these points can be found in the full report.

  • Establishing a clear purpose: Policymakers should identify a clear purpose for a U.S. CBDC. This is an essential first step that will inform all future design choices. A clear purpose would also enable policymakers to determine if there are other, safer means available to achieve it, and to more generally weigh the costs and benefits of a U.S. CBDC. 
  • Examining the purpose: The Treasury Department and Federal Reserve should conduct a joint study of the specific purposes for which a U.S. CBDC is to be introduced. For each purpose, the study should determine: (i) the likelihood that a U.S. CBDC would achieve the stated purpose; (ii) the potential impact on monetary and fiscal policy, financial stability, and the safety and efficiency of U.S. payments systems; and (iii) whether there are other means of achieving the stated purpose at less cost or risk.  
  • Building a strong legal foundation: As it stands, U.S. law is not comprehensive enough to support a CBDC. Its introduction would require new, carefully crafted legislation that outlines the roles and responsibilities of government entities and private sector participants in the design, issuance, and ongoing support of a CBDC, as well as laws that appropriately protect its holders.   
  • Minimizing the risks: If introduced without proper safeguards, a CBDC could threaten the health of the current financial system by destabilizing existing banking and payments ecosystems. It could also drive out private sector investment and innovation, and increase illicit activity involving the U.S. dollar. In order to minimize these risks, there may be a need to limit the use of CBDCs to certain types of transactions, as well as to cap the amount of CBDC holdings that individuals and businesses can maintain.

By outlining these considerations, The Clearing House recommends that legislators, policymakers and the Federal Reserve carefully weigh the costs and benefits associated with introducing a CBDC into the U.S. financial ecosystem.  

Bill Sebell, director of ecosystem development at open-source blockchain platform XinFin, says there will be major legal and regulatory barriers to the wide-scale public adoption of a U.S. CBDC. Lawmakers will likely have to issue amendments to earlier legislation and set guidelines for private and public participants to ensure ethical and transparent use of the technology. However, alongside these changes, we may also see greater disintermediation, lower operating costs for SMBs, and a more competitive landscape for industry-specific growth.


“Having witnessed the effects of similar technologies in the private sector, it’s likely that the digital infrastructure for a CBDC will contribute substantially to the efficiency of our financial rails and payment systems,” said Sebell. “By extension, it will have a trickle-down effect on the job market, potentially reducing enterprise expenditure and paving the way for industry-essential employment opportunities.”

Doug Schwenk, chairman of crypto research platform Digital Asset Research, says a CBDC could help America’s unbanked population by improving access to capital and enabling efficient payments to anyone with an internet connection, regardless of their geographical location or credit situation. A CDBC would also boost the DeFi space and could help cement the U.S. as a leader in the next phase of financial innovation.

At the same time, this technology could cause a major upset to U.S. banking economics. “If a CDBC is available to anyone, why would you put your cash in a bank? The livelihood of banks would be under threat if a retail CDBC were rolled out without serious consideration for current banks that rely on deposits to fund lending, and ultimately their revenues,” said Schwenk. 

“At this point, it looks like the introduction of a U.S. CBDC is a case of not if, but when. What’s much less certain is how we’ll move forward with it, and whether timely policy decisions will be made to counter threats and encourage opportunities in a balanced and meaningful way.”

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