And the postings on CBDCs just continue. This one is at Bloomberg and in the wealth subsection around crypto, which it seems lately that people can’t get enough of. There has been a slight uptick in interest given the recent EO by the Biden White House, which we also commented on the other day. As we pointed out, this EO merely shines further light upon something that has been underway at the Fed for more than a year, and indeed is already live (or will soon be) in a number of central banks.
‘The world’s reserve currency may be about to go digital, potentially transforming the way Americans move and use their money…
On Wednesday, the White House directed federal agencies from the Treasury to the Commerce Department to research a number of crypto-related topics, including the pros and cons of a digital dollar. For consumers, the move could mean lower-cost transactions and greater access to the financial system, but it could also threaten their privacy and hurt U.S. banks that depend on deposits.’
In this case, the dual authors focus on what is one of the bigger issues from the perspective of the U.S. citizenry, which is (or should be) privacy. So think about physical cash that is issued by the Treasury Department and typically distributed to the public via commercial banks and ATM dispensers. Once you have the cash, there is no direct visibility into how a consumer uses that cash, other than a third party receipt for goods and services that someone may or may not receive as a transaction record. An e-dollar has the potential (depending upon how designed and used) to be directly tracked by the federal government, something that has direct privacy implications. It is one of the key points in the discussion and testing phase that has been ongoing. Some other things are covered, so for those who have not been keeping up, worth a quick read.
‘Separately, banks and financial institutions that depend on deposits from customers to run their businesses and finance lending might take a hit if a digital dollar becomes popular, Luther said. The Federal Reserve released a discussion paper earlier this year that said a digital currency could reduce the amount of money in the banking system, increase the cost of loans and reduce credit availability to households and businesses…
The public hype around cryptocurrencies means the U.S. government can no longer ignore the possibility of a digital currency. But aside from the technology, a digital dollar would be conceptually different from a cryptocurrency like Bitcoin, which is still too volatile and insufficiently accepted to be useful for payments.’
Overview by Steve Murphy, Director, Commercial and Enterprise Payments Advisory Service at Mercator Advisory Group