Is the US going to launch a CBDC?

Rumors and, in many cases, fears have increased regarding a US central bank digital currency. Some in the space have even given the theoretical token the obnoxious name “Fedcoin”.

But does it really happen? Is the US Government Going to Launch a Cryptocurrency?

What is a CBDC?

Central bank digital currencies are cryptocurrencies issued by governments. While the cryptocurrencies we know today are typically associated with financial freedom, anonymity, and other ideals that contradict central banks, a CBDC could leverage the technology behind those cryptocurrencies in more institutional ways.

Some of these, such as issuing payments, providing access to financial services, providing resources and other uses, are potentially useful. However, a CBDC could potentially increase less favorable abilities as well. Those can include surveillance, control over individuals’ finances, and other nightmare scenarios.

Does the US have a CBDC?

The US currently has no CBDC. It may never have a CBDC. But it is exploring the option.

The US CBDC Initiative

While a US CBDC has been a subject of speculation in crypto circles for years, the real path started with President Biden’s decision. Executive Order March 2022. The injunction also encouraged US involvement in “payment innovations and digital assets,” including investigating consumer protections. It also set the gears for a potential CBDC.

My administration places the highest urgency on research and development efforts in the potential design and implementation options of a CBDC in the United States

The order currently requires reports on what a potential CBDC could and should look like. However, those reports had deadlines that ranged from several months to a year.

The current status of the US CBDC research

At the time of writing, the first reports are in. While they don’t support (or oppose) a CBDC, the reports outline some considerations and available options that an eventual developer could pursue if they choose to pursue it.

The reports also point out that as complicated as a CBDC would be to implement, that is only part of the problem. A CBDC can affect most aspects of economic life. This is especially true for the government, as the reports also state that any CBDC should be optional for Americans.

“A ‘CBDC system’ includes the CBDC itself, the public and private sector components built to interact with it, and the laws and regulations applicable to each of those elements,” a technical review by the Office of Science and Technology Policy stated.

The same report also stated that, in addition to research and development that has not yet begun, the CBDC would require extensive pre-testing before even entering a pilot phase. The report declined to propose a timeline or budget for such an initiative, given the number of key decisions yet to be made.

A supposed design for a CBDC system is unlikely to succeed without testing, evaluation and feedback. Incremental design and development should increase the likelihood of eventually launching a successful CBDC system.

Why would the US want a CBDC?

Issuing a CBDC could enable the United States to offer Americans more affordable and convenient financial services. For example, the technical review of OSTP mentioned the idea that a CBDC could be used to issue social safety net benefits, such as the Supplemental Nutrition Assistance Program.

Enhanced access can also help unbanked Americans. This includes those who live in rural areas and may not have easy access to a banking institution, but it could also include Americans who do not trust banks. Getting Americans who don’t trust banks to trust a CBDC is its own obstacle, as would a CBDC that would work in low-connectivity areas or even offline.

The Executive Order also highlights a role in a CBDC that drives economic opportunities by streamlining domestic and cross-border payments. However, this comes with its own technical challenge, as people in other countries must have and use a digital dollar or interoperability between the digital dollar and other non-existent CBDCs.

“The CBDC system should, where appropriate and consistent with other policy priorities, facilitate transactions with other currencies and systems, such as physical cash, commercial bank deposits, CBDCs issued by other monetary authorities and other financial systems,” says a list of policies. . objectives also by OSTP [PDF].

Fears and Rumors of US Government CBDC

Crypto commentators have been talking about a CBDC for years and they are concerned. For example, could a CBDC allow currency manipulation? Probably no easier than the current financial system.

Another concern is supervision. This potentially more real concern is addressed in existing reports. For example, a CBDC would allow for more observation than cash payments. However, the recommendations so far have been that this line should not be crossed.

According to the OSTP, “The CBDC system should make it possible to collect information necessary to comply with (anti-money laundering and counter-terrorism financing), but no more.”

Another prominent concern is that a CBDC would allow the government to freeze an individual’s assets if they expressed political views contrary to the government. This can be prevented by anonymizing accounts or at least certain transactions. Again, according to OSTP, “The CBDC system must also be protected from abuse during periods of high political volatility or deviation from democratic values.”

Both concerns would also be much more real if the CBDC were the only circulating form of currency. Unfortunately, this isn’t the direction things seem to be going in either. All documents even suggest and assume that a CBDC adds situational utility to current (and even future) forms of money rather than replacing them. Also, let’s not forget that if the government wants to freeze your money, it doesn’t need a centrally controlled cryptocurrency to do so.

“The use of the CBDC system should not be mandated. Offline capabilities should be included and the role of cash should be suggested,” the OSTP proposes. The language in current reports does not necessarily preclude interoperability with existing cryptocurrencies, similar to crypto services offered by PayPal.

The Complicated Future of a CBDC

Even after reading hundreds of pages of reports, not to mention the reports expected in the coming months, there are many unanswered questions about what a US CBDC might look like, when it might be ready, and even whether it will happen at all.

After all, even the Executive Order that started all this research suggested no CBDC at all. Is the US CBDC something that should be on your radar? Probably. Is it something that should keep you awake? Probably not. At least not yet.

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