BLUF

Despite a lot of talk about the USA moving to a digital currency, many financial experts are yet to be convinced

Summary

A recent speech by USA  Federal Reserve Governor Christopher J. Waller titled CBDC: A Solution in Search of a Problem? reveals that Waller is skeptical of the concept of Central Bank Digital Currencies (CBDC). Currently, about 80 Central Banks are researching the concept of CBDC. The CBDC tracker shows that some banks are pretty advanced, with the Chinese poised to release e-CNY soon. Waller, however, does not see any problem which CBDC would solve, as alluded to in the title of his speech. And Waller’s views echo another speech made by the Fed Board Vice-chair Randall Quarles. Both Waller and Quarles base their arguments on what they say are the current excellent state of payment systems in the United States. Some facts:

Currently, Americans only have access to one form of Central Bank issued currency—cash. 

Cash is the ultimate anonymous peer to peer transaction mechanism and is favoured by the elderly and those without bank accounts. 

Cash is also helpful during certain kinds of disasters.

If CBDC were to be issued, the main difference would be that CBDC is digital. 

Both governors emphasize that the payment systems in the United States function well and that CBDC is not necessary. 

Waller admits that current cross-border payment systems are not ideal, but his prescription is for more private innovation, pointing to the rapid growth of Stablecoins as evidence. 

Risks associated with CBDC are extensive and national infrastructure for issuing and distributing currency is vulnerable—with a digital currency, these risks are magnified. 

In addition, hackers will likely try to disrupt the smooth functioning and trust associated with a national currency, which could have disastrous consequences on the economic stability of the USA.

But, the argument for a CBDC rollout does not call for the elimination of cash—just having CBDC as an alternative option to cash.

Learn more about the USA and the move towards a digital currency.

References

July 2021 The Conversation What are stablecoins? A blockchain expert explains

Jul 2021 Financial Times The time to embrace central bank digital currencies is now

Jul 2021 Financial Review RBA discussing digital money with global central banks

Aug 2021 Financial Times Why banks fear central bank digital currencies

Sep 2021 Bloomberg Central Bank Digital Currencies to Be Tested in BIS Experiment

Sep 2021 SMH RBA joins central banks looking at using digital currencies for global payments