Evolution of banknotes and coinsCBDCs are the digital equivalent of banknotes and coins, giving holders a direct digital claim on the central bank and allowing them to make instant electronic payments. While debit cards or payment apps are a form of digital cash, those transactions are created by commercial banks based on money central banks credit to those banks’ accounts. They are not fully government-backed, can take days to settle, and often incur fees. Cryptocurrencies, meanwhile, are controlled by private actors. Central banks around the world, including in China and Europe, are revving up CBDC projects to fend off threats from cryptocurrencies and improve payment systems. The British government recently asked its central bank to look into launching a digital currency to co-exist with Sterling, earning the nickname “Britcoin”.
“Important to get it right”As guardian of the world’s most widely-used currency, the US Federal Reserve is moving more cautiously. It is working with the Massachusetts Institute of Technology (MIT) to build a technology platform for a hypothetical digital dollar, but chair Jerome Powell said last week that it is “far more important” to get a digital dollar right than it is to be fast. Giancarlo said Powell was correct to be cautious but as China pushes ahead, the United States must drive a discussion on incorporating US values such as privacy and freedom of commerce and speech into the development of CBDCs. “It’s vital that the US asserts leadership as it has in previous technological innovations,” Giancarlo added. A digital dollar could also boost financial inclusion in the United States, where transaction fees impede the access of many Americans to mainstream financial services, Giancarlo said.
Practical uses for the digital dollarThe pilot programs, three of which will launch in the next two months, will complement the Fed’s MIT project by generating data on the functional, sociological, business uses, benefits and other facets, of a digital dollar. The data is due to be released publicly.
David Treat, a senior managing director at Accenture, said CBDCs would exist alongside other forms of physical and electronic money, rather than replace them.
“It’s not a panacea for all money,” Treat said. “We will be using physical cash and coin for some time”.