The U.S is lagging behind in CBDCs deployment, whereas 87 Countries around the world are currently exploring the CBDCs. Many of the countries have either deployed or are considering issuing their own CBDCS. According to the Atlantic Council, China is already piloting the digital Yaun.
The cash payments in the U.S has declined from 31% to 20% in the last five years, and people below 45 years are more on this count. Hence, president Brainard says that the country must “consider how to preserve ready public access to save central bank money.” for the future digital finance system.
The digital dollar is the solution found for this, whereas the adoption of the digital asset is growing rapidly and CBDCs could also co-exist and complement crypto as well, she opinionated
“In some future circumstances, CBDC could coexist with and be complementary to stablecoins and commercial bank money by providing a safe central bank liability in the digital financial ecosystem, much like cash currently coexists with commercial bank money.”
The Vice-Chair of the Federal Reserve, Lael Brainard, believes that the U.S central bank digital currency (CBDC) would help the U.S financial system stability by which the country could be prepared for the future. She commented before appearing at the Committee on Financial Services, U.S House of Representatives, on May 26.
She quoted: “The rapid ongoing evolution of the digital financial system at the national and international levels should lead us to frame the question not as whether there is a need for a central- bank-issued digital dollar today, but rather there may be conditions in future that may give rise to such a need. we recognize there are risks of not acting, just as there are risks of acting.”
The CBDC, digital dollar establishment could further substitute commercial bank money and reduce the total deposits in the banking system. CBDCs would be the most preferable option for people during times of stress.
To tackle these risks she suggests offering a non-interest-bearing CBDC or to limit the amount that one can hold or transfer on CBDC. In Fact, the CBDC is just not meant for the U.S citizens, Brainard says, the government of the country also needs to emphasize the international payment systems as well.
“In future states where other major foreign currencies are issued in CBDC form, it is prudent to consider how the potential absence or presence of a U.S central bank digital dollar could affect the use of the dollar in global payments.”
As the risks associated with virtual currencies have come into the spotlight after the Terra LUNA fiasco. Bitcoin price has slipped to 28% over the last 30 days, as the loss of TerraUSD’s peg to the dollar and the sister token LUNA’s value to virtually zero.
Thus, Brainard is concerned about the CBDCs transactions ensuring privacy, accessibility, interoperability, and security. She says that the U.S must set the governing standards for CBDC transactions.
She stated: “These events underscore the need for the clear regulatory guardrails to provide consumer and investor protection, protect financial stability, and ensure a level playing field for competition and innovation across the financial system.”
President Biden released the executive order in March and placed “higher urgency” on researching the designs, risks, and need for a CBDC. In concerns the privacy over CBDC the Fed policymakers are largely divided in their opinion on the need for a digital dollar, and the Fed governor Christopher Waller has remained skeptical about the CBDCs privacy concern.
In addition to this the central bank of the U.S has also paused the launch of CBDC unless it gets the clear and complete support from the White House and lawmakers.
In a summary of Federal Reserve public consultation, soliciting the comments and feedback on the CBDC issues has revealed the summary of the comment saying ‘will be published soon’.