The news: The Federal Reserve Bank (Fed) made a case for a central bank digital currency (CBDC) in Congress, but trade groups see more harm than good, per Banking Dive.
Her testimony also pointed out that a CBDC is necessary for the US to stay relevant as a world banking power, as other countries such as China and Russia are developing their own CBDCs.
The industry rebuttal: Prior to this testimony, when the Fed released a report in January discussing the development of a CBDC, it invited comments from industry players and trade groups. Multiple trade groups submitted comments rebutting a CBDC, including the American Bankers Association and the Bank Policy Institution.
In support of their views, the groups also pointed out that private sector innovation in banking established the US dollar as the world’s reserve currency, and that further innovation would solidify its position in the future.
CBDCs around the world: Currently 91 countries have considered or are considering the launch of a CBDC, per Atlantic Council.
Notably, China’s pilot currently spans 28 major cities, and it reports that more than 260 million digital wallets have been opened. Earlier this year, during the Olympic Games, foreign visitors could use the CBDC, called e-CNY, at venues in Beijing and Zhangjiakou.
The Bank of Russia is piloting a digital ruble program in partnership with 12 banks. Earlier this year, it reported that two partner banks had successfully completed a full cycle of digital ruble transfers through mobile banking applications. The Bank of Russia claims that 83% of the feedback it received during a feedback period supported the initiative. Nevertheless, as in the US, some Russian banks and fintechs fear the CBDC is excessively centralized and could harm private banks’ business.
The big takeaway: Worldwide development of CBDCs will push the US to develop its own digital currency if it aspires to remain a world banking leader, especially as younger generations move away from the use of cash.
But execution will be key, as regulation, liquidity, and some form of deposit insurance will be necessary to quell the fears associated with a digital currency. Implementation will also require further planning, as the Securities and Exchange Commission (SEC) has already indicated it needs to bulk up staff in its crypto division. Private banks have an opportunity to step in and help out with CBDC operations. The Fed has hinted at private bank wallets, but whatever course it follows, private banks should expect to play a role in the development and rollout of a CBDC.