National cryptocurrencies
Main article: National Cryptocurrencies (CBDC)
2024: Consideration of bill to ban creation of Fed digital currency
In May 2024, the US House of Representatives is considering a bill banning the Fed from creating a central bank digital currency.
2022: US Treasury: The country does not need a digital dollar
On December 21, 2022, the US Treasury Department said it did not consider it necessary to rush to launch a digital version of the state currency.
In the current situation, the United States does not need to introduce a digital dollar, writes Bloomberg, citing a statement by US Deputy Secretary of the Treasury for Internal Finance Nelly Liang.
American regulators need to examine whether the digital currency of central banks (CBDC) will actually improve the speed or cost of real-time interbank payments that the Federal Reserve plans to introduce in 2023.
According to Nelly Liang, US global leadership does not depend on technology, but on the system of rules that govern markets. Asked whether the digital dollar would help protect the dollar's primacy in international trade or as a reserve currency, she was even more certain. Liang believes that there is no need to create a digital version of the dollar. However, the US Deputy Treasury Secretary admitted that if most countries introduce a digital state currency, this could push the United States to develop its own domestic product.
Opinions on CBDC on the US Fed's Board of Governors vary. Manager Christopher Waller has become a sceptic on digital currencies, while Vice Chairman Lael Brainard is looking at the issue in light of a more efficient payment system that could benefit the underserved and the global economic strategy until 2030. Fed Chairman Jerome Powell has shown no urgency in deciding on the issue anytime soon, [1] said in December 2022.https [2]
2021: Digital Dollar Project (DDP) launches five digital dollar pilots in the US
In early May 2021, the American organization Digital Dollar Project (DDP) announced the launch of five pilot projects to test the potential use of the digital currency of the US central bank. Read more here.
2020
Fed creates blockchain platforms to launch digital dollar
The US Federal Reserve FRS , together with the Massachusetts Institute of Technology MIT (MIT) and the Federal Reserve Bank of Boston, are studying the impact of distributed registry and digital technologies on the dollar financial system. For testing CBDCs (digital currencies of central banks), - blockchain platforms were developed. This was announced in mid-August 2020 by a member of the Board of Directors of the US Federal Reserve Lael Brainard.
The American regulator intends to deeply explore the possible impact of digital currency on the existing economic situation in the country, monetary policy and the banking sector. In addition, the question remains whether the digital dollar will not pose a threat to financial stability.
According to Brainard, the COVID-19 coronavirus pandemic reminded the importance of forming a stable payment infrastructure that would be accessible to all residents of the country. At the beginning of the pandemic, representatives of the US Democratic Party planned to submit a bill that included provisions on CBDC - the digital dollar could be used to make payments, thereby stimulating the economy. However, in the spring of 2020, this idea was not implemented.
Brainard acknowledges that national digital currencies have their advantages, but recalls some of their disadvantages. CBDC is often associated with risks of illegal activities, as well as violation of financial stability. The US regulator intends to continue working out provisions for controlling the issue of CBDC, the use of digital currency at the public and government levels through testing. For this purpose, several blockchain platforms are being developed - in addition to the already mentioned members, the Federal Reserve Bank of Cleveland, Dallas, is also participating in New York the project. The results of these experiments are expected to be presented a little later in the public domain.[3]
US senators named the main task of the digital dollar
In early July 2020, a U.S. Senate committee held a virtual hearing on digital currency with a focus on the central bank's digital currency (CBDC, the digital dollar project). The international status of the US dollar and whether CBDC would provide for the needs of people without access to basic banking services was discussed. According to senators, without digital currency, it will be difficult to maintain the international status of the American dollar.
The chairman of the committee noted in his opening remarks that "these and other innovations are inevitable, and the United States should be the leader when it comes to their development." Former chairman of the US Commodity Futures Trading Commission (CFTC) and founder of the Digital Dollar project, Chris Giancarlo, answered a question about whether CBDC threatens the status of the dollar.
 | The international status of the dollar as a reserve currency is based on many factors. Most of them are not in danger in the near future. However, China and some other players intend to undermine a number of these pillars. The development of the digital yuan should bypass the existing account-based system and provide direct payments. Combined with the Belt and Road Initiative as well as the free trade area in the east, China's digital currency could rock the dollar's position in the global market. |  |
Giancarlo also noted that most goods in the world are valued in dollars. As they all go digital programmable, the dollar must also go digital. Senator Tom Cotton agreed with him, who noted that the need for a digital dollar is more connected with maintaining the status of the reserve currency of the dollar and ensuring its role in world payments.
Another key issue of discussion was the financial availability of the new technology, and in this case, senators spoke out against CBDC. They noted that without serious tests it is difficult to say in advance how the introduction of a digital dollar will affect the real financial situation in the country. One of the senators noted that the main mechanism for accessing digital currency is digital wallets, but almost 45 million Americans do not have smartphones. In addition, the widespread use of digital currency is hampered by the lack of broadband access.[4]
US Federal Reserve Bank: Digital dollar will destroy banking business
In mid-June 2020, the Federal Reserve Bank of Philadelphia (FRB) issued a report on the impact of national cryptocurrencies (including the digital dollar) on the development of the banking sector. According to economists, such currencies are capable of destroying the banking business.
Researchers say that the function of a commercial bank as an intermediary will be largely lost, in addition, in the event of financial troubles, the likelihood of "raids" on banks will increase, when people come there en masse and withdraw their funds from accounts.
If the Central Bank also receives fiscal subsidies for deposits in addition to new opportunities, competition in the banking market will sharply decrease and regulators risk becoming a deposit monopoly. The consequences for commercial banks may be fatal, the Fed warns.
According to experts, the digital dollar will help banks by complicating money laundering, preventing funds from going offshore and strengthening control over the tax system. Digital assets would also help simplify financial transfers between banks, and citizens would not have to open accounts to which cards are tied: all transfers would go through secure blockchain systems. And in crisis situations, cryptocurrencies could provide quick assistance to the population and business through direct payments.
But there is also the downside of the coin: the digital dollar and other national electronic currencies can destroy the banking system familiar to the world. The only players in the market can remain only central banks, which will conduct settlements through blockchain systems, accept deposits from the population and perform other commercial functions.
Central banks will start working again to make a profit, not just supervising other financial institutions and issuing money. Digital technologies and expanding Internet access in the world would allow central banks not to acquire offices, but to completely switch to online and cashless format.
Fed: digital dollar will weaken commercial banks and strengthen the power of the Central Bank
In mid-June 2020, experts from the US Federal Reserve System (FRS) concluded that the release of the digital dollar could undermine the ability of commercial banks to provide long-term loans.
The Fed's research department, in collaboration with the universities of Pennsylvania and Chicago, released a 32-page research paper titled "Central Bank Digital Currency: Central Bank for All?," which examined the implications of issuing the central bank's digital currency (CBDC). The Fed focused on the potential competition of the digital dollar with the traditional role of commercial banks in the credit system.
| | The introduction of digital currency could trigger a fundamental shift in the architecture of the financial system, creating a central bank'open to all'. We are considering the situation in which CBDC takes the form of deposit demand accounts at the central bank, the study said. | |
The fact is that the digital dollar is able to replace the mechanism of partial reservation and transformation of the maturity characteristic of the modern banking system. The latter refers to the practice of converting short-term funds into long-term funds by financial intermediaries: banks accept deposits for a short period, and provides loans on a medium or long-term basis. This is the role commercial banks perform to meet the needs of lenders and borrowers.
However, this process can backfire, such as in the case of panic or bankruptcy, when all savers try to withdraw money at once or when money markets suddenly dry up due to lenders no longer providing short-term loans to each other.
The Fed document determined that a set of appropriations achieved through private financial intermediation (i.e. commercial banks) could also be achieved through CBDC, provided that competition with these commercial banks is allowed and depositors do not panic.
| | But if competition from commercial banks decreases (for example, due to budget subsidies of central bank deposits), the central bank will have to make very careful decisions to avoid chaos with the transformation of maturities, the document says. | |
In other words, if CBDC does undermine the role of commercial banks and allow more money to be borrowed than is given for safekeeping, then central banks could hurt money markets.
The document also shows how the "rigidity of the central bank's contract with investment banks" holds back panic and thus if depositors start making deposits exclusively at the central bank, it could end up becoming a "deposit monopolist," attracting deposits from the commercial banking sector.
| | This monopoly power eliminates the forces that encourage the central bank to ensure a socially optimal degree of maturity transformation, the Fed said in a document. | |
Another financial regulator, the Bank of England, spoke about the same, whose experts believe that CBDC can help achieve a number of goals to maintain monetary and financial stability, but at the same time it can cause customers to flee from commercial banks.
However, Fed experts believe that these economic risks cannot be inevitable. There have been examples in history of central banks taking on the role of lenders to individuals and businesses. In particular, researchers recalled the Bank of England, which in the XVII century was engaged in the issuance of mortgage loans, the basis for which was deposits of the population.[5]
In the United States presented the concept of digital dollar
At the end of May 2020, the concept of a digital dollar was presented in the United States. The Digital Dollar Project team has published the first technical document outlining the design features of the digital currency to be studied.
Accenture and the Digital Dollar Foundation have teamed up to study the digital currency of the US central bank (CBDC) through public discussions. The development is led by former chairman of the Urgent Exchange Trading Commission Chris Giancarlo, supported by a 30-member advisory group.
| | Given the status of the US dollar as the main reserve global currency and the study of CBDC by other national governments and interested organizations, our project should consider the concept of the US digital dollar in a number of uses as a critical and reasonable initiative requiring immediate launch. | |
The technical document describes the features of the "champion model." At this stage, the team intends to investigate the application of the digital dollar to both retail and institutional/wholesale transactions. From the point of view of the authors of the report, the new financial model should have a two-tier structure, which involves the distribution of digital cash through the Federal Reserve System, and then through commercial banks. The digital dollar should not replace physical cash, but become the third form of money. The Federal Reserve will continue to monitor monetary policy.
Tokenization was chosen as the basis of the model, that is, "the transformation of an asset, commodity, law or currency into a representation with properties sufficient to confirm and transfer ownership." This is partly because such a model fairly closely mimics physical cash and facilitates peer-to-peer transactions. It is also quite convenient for use in digital calculations and especially for distributed ledger (DLT) transactions.
As for technology, the authors believe that the choice will be determined by the requirements for digital currency. However, they prefer DLT technology. At the very least, their project will rely on DLT and include programmable money. Specifically, they envision exploring DLT's capabilities with "public, private, and possibly new private-public organizations reviewing transactions."
The team of authors also noted that the digital dollar should lead to partial decentralization: "The key challenge for the digital dollar is the issue of privacy. But this is a political choice and should be made by the government. "
The official document describes a certain level of confidentiality of new digital money. Details of low value balances or transactions may remain confidential, similar to cash. U.S. laws initially provide some protections that prohibit the government from seeking and collecting information about cash transactions without specific justification. If these measures are in effect in the case of digital currency, then this will determine the means of privacy protection.
| | Given our knowledge of the possibilities of different technologies, we expect serious policy discussions about how to best apply them to meet our collective needs. In some cases, the answer should be the development of new laws and regulations, in other cases the introduction of innovations and the application of technological capabilities within the framework of existing laws.[6] | |
JPMorgan: Without digital dollar, U.S. will lose influence in global economy
At the end of May 2020, JPMorgan Chase analysts published a report warning the banking sector that without a digital dollar, the United States will lose its influence in the global economy.
The authors of the report, including the head of the US bank JPMorgan on interest rate derivatives strategy Josh Younger and US chief economist Michael Feroli, wrote: "Basically [our influence] is related to the hegemony of the US dollar. The issuance of a global reserve currency and a medium of exchange for international trade in goods and services carries enormous advantages. "
While analysts do not expect the dollar to lose its status as a global reserve currency anytime soon, they have pointed to some weaker links in the chain, including in trade settlements and the SWIFT messaging system.
SWIFT was a particularly important lever in imposing sanctions on the Iranian regime and suspending access to Iranian banks in 2018. JPMorgan speakers note that if other countries were able to bypass SWIFT, it is possible that the United States would not be able to achieve its geopolitical strategic goals.
Analysts said the digital currency initiative plays a key role in supporting US global influence. In particular, the speakers emphasized that "digital currency is an exercise in geopolitical risk management." However, managing this risk does not necessarily exclude the use of the digital currency component for its own purposes.
According to JPMorgan Chase analysts, the United States needs to take a closer look at the idea of the central bank's digital currency in order to reduce the risks of losing influence on the global stage.
| | There is no other country that could lose more due to the punching potential of digital currencies than the United States, the agency quoted experts as saying Bloomberg. - This is primarily due to the leadership of the US dollar. The issuance of the world's reserve currency and foreign exchange funds for international trade in goods, including exchange-traded goods, and services carries enormous advantages. | |
A solution for cross-border payments, built on the basis of the digital dollar, would be a modest investment in order to protect key tools for projecting power in the global economy, especially if such a decision ensures minimal violations by the structure of the internal financial system, analysts said.[7]
US Fed: "We can print a digital dollar"
According to the head of the American Federal Reserve System (Fed) Jerome Powell , the United States can print money "in numbers." He made the corresponding statement during his participation in the 60 minutes program of the American television channel CBS on May 17, 2020.
Powell noted that the American economy needs so much money to recover that the regulator intends to move to issue some of the new US dollars "only in the form of records in electronic accounts."
The remark comes after Powell earlier confirmed that the US central bank had put a "pause" on upgrading its own fast money transfer system, focusing on developing the concept of a "digital dollar" on the blockchain.
Powell stressed that the US Federal Reserve by May 2020 "did not determine the advantages of state cryptocurrencies for implementation in monetary policy."
Powell summed up that after the COVID-19 coronavirus pandemic, the American economy will face a "gradual recovery." However, this recovery will primarily depend on overcoming the consequences of the medical crisis, reducing the number of cases and opening a vaccine.
Jerome Powell believes that the digital dollar and the digital yuan cannot be compared because they have a "completely different institutional context," while noting that every big central bank of the planet is now "deeply considering" the CBDC. According to him, a single dollar served the United States well.
Earlier in 2020, Jerome Powell said the US Federal Reserve is working to create a central bank digital currency. According to the politician, the impetus for the development of this direction was Facebook's statement on the development of the Libra payment system, which is capable of rapidly spreading.[8]
US Digital Dollar Project Development
At the end of March 2020, the Digital Dollar Foundation announced the creation of a 22-member advisory group that will help develop the framework for the creation of the digital currency of the US Central Bank. The fund intends to explore the potential application of the digital dollar.
The Digital Dollar Foundation is a nonprofit formed earlier in 2020 by former Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo and Accenture. Consulting has already worked with central banks, including Canada, the Monetary Authority of Singapore, the European Central Bank and Ricksbank.
The project, in addition to J. Christopher Giancarlo, is led by Charles Giancarlo, an entrepreneur, investor and executive director who is also CEO of Pure Storage, and Daniel Gorfin, founder and CEO of Gattaca Horizons LLC, associate professor of law at Georgetown University Law Center and former chief innovation officer at the CFTC.
The advisory group includes former employees of regulators, experts in fintech, cryptocurrencies, banking, capital markets, privacy and property rights, international standards and monetary policy, experts from anti-money laundering, national security, privacy and property rights organizations, and educators, academics, prominent businessmen and economists.
| | The experience of the new advisory group members will be invaluable as we work together to make the dollar a more efficient currency in a digital global economy, "explained Chris Giancarlo. | |
Payment advisers include Kai Sheffield, head of cryptocurrency at Visa, and Jesse McWaters, vice president of global digital policy at Mastercard. Former government officials include Sigal Mandelker, former undersecretary of the Treasury for terrorism and financial intelligence, and Mike Piwowar, former commissioner of the U.S. Securities and Exchange Commission.
Capital markets are represented by Martin Chavez, former chief information officer and chief financial officer of Goldman Sachs.
| | We believe that the Central Bank's digital currency will become the basis for a more inclusive, efficient and efficient global financial system, "said Accenture Senior Managing Director David Treat[9] | |
The project will identify CBDC options to improve monetary policy efficiency and financial stability; ensuring the necessary scalability, security and confidentiality of retail, wholesale and international payments; as well as integration with existing financial infrastructures, including those associated with the US Federal Reserve.
The next stage of the project will be the development of a study in which the main elements and value proposition of the digital dollar will be proposed. The document is expected to be released in the next two months.
Notes
- ↑ he
- ↑ ://www.bloomberg.com/news/articles/2022-12-21/digital-dollar-gets-little-urgency-from-treasury-s-liang Digital Dollar Is a Long Way From Reality, US Treasury Official Says
- ↑ Federal Reserve reveals scope of its digital dollar research
- ↑ US Senate central bank digital currency hearing: motivation is to sustain status of dollar
- ↑ Fed Paper: Central Bank Digital Currencies Could Replace Commercial Banks – But at a Cost
- ↑ Digital Dollar Project unveils its digital currency model
- ↑ [1]Digital Currencies Could Threaten US Geopolitical Power, Warns JPMorgan}}
- ↑ Fed’s Powell tells ‘60 Minutes’ he’s not out of ammunition to fight the recession
- ↑ Digital Dollar Project forms advisory group for US digital currency
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