Digital Dollar Project Warns on US Cautious Approach to CBDCs
The United States may have conceded a head start to other nations in "setting global standards for the future of money" regarding central bank digital currencies (CBDC), but in the future the country "should lead the development of an international regulatory framework around digital currencies," the Digital Dollar Project (DDP) said on Wednesday.
More than 100 jurisdictions around the world are researching or developing a CBDC but the U.S. remains cautious on the merits of a CBDC.
"In the coming CBDC future, the U.S. should actively lead global discussions on governance, interoperability, security, privacy and scalability standards rather than reacting to foreign CBDC decisions," the DDP wrote.
The DPP laid out a series of warnings about the United States' cautious approach, calling it "a conspicuous absence" and an "unsustainable position."
Such a "defensive posture" by the U.S. threatens to impact its domestic economy if foreign nations issue their own CBDCs that become widely adopted as the de facto standards for international wholesale and retail payments, the paper warned.
Additionally, the CBDCs of other nations could be used to avoid financial sanctions making it imperative that the U.S. find ways to maintain the dominant use of the dollar in the digital global payment systems.
If the United States-led global financial infrastructure is perceived as "too slow and expensive in comparison to foreign alternatives," a potential threat as other countries rapidly explore their version of central bank digital currencies, it's possible other nations will begin or continue the process of "de-dollarization," the DDP argued.
The Atlantic Council previously issued a similar warning.
The DDP's white paper referred to a 2022 study by the Hoover Institution that looked at global implications of China's CBDC, the e-CNY, including how China has established a first-mover advantage in not only the deployment but also the technical underpinnings of CBDCs.
China's CBDC enhances its ability to cement its international leadership in the space, the white paper noted. The e-CNY helps China's ability in setting "economic norms and technical standards that align with its authoritarian governance system, and increase its ability to undercut the traditional dominance of the U.S. dollar as a source of geo-economic and strategic influence."
CBDC expert and the CEO and co-founder of Fluent Finance, Bradley Allgood, said the U.S. has been setting leadership standards, referring to the Federal Reserve Bank of New York and its testing of the use of digital tokens representing digital dollars for wholesale transactions along with big banks.
"When you look at the Fed of New York and what they have been doing in their innovation offices, this has been setting the standard, with all of it leaning towards wholesale, tokenized deposits or tokenized liability network settlement between bank to bank," Allwood told CoinDesk.