The United States risks falling behind on CBDCs

The United States faces an increasingly urgent decision: whether to undertake a determined move towards issuing a CBDC, as the Bank of China and others have begun to do, or to delay again.

The sooner you decide, the better. Many countries are tackling this problem seriously and quickly. Many nations have initiated pilot programs, most notably China, which recently conducted a test with 50.000 Shenzhen residents, reigniting concerns about its rapid progress and geostrategic implications. On the contrary, the United States is relatively cautious and calm.

It is more important to "do well than be the first"

On CBDCs, Federal Reserve Chairman Jerome Powell said this month that it is more important for the US to "do well than be first". Exploring a more concrete CBDC is on the agenda at the Federal Reserve Bank of Boston, which is partnering with MIT to look at 30-40 technologies available in two to three years.

Treasury Department officials suggest there is other movement behind the scenes as well, but little has been made public. If the United States is to lead the advent of CBDCs, it should reasonably do much more, and quickly.

They could test several pilot projects simultaneously, as pointed out by the Digital Dollar Project (a group led by Chris Giancarlo, former president of the Commodity Futures Trading Commission), along the lines of what the Bank of France and the People's Bank of China are already doing.

US stakeholders, including Congress, should begin addressing the crucial and complicated issues of digital dollar design, including the fundamental issue of privacy. Giancarlo stressed that it could prove to be "an ace to play in the competition for the future of digital money".

If, on the other hand, the US wants to keep waiting while other countries advance on CBDCs, it could lean on a substantial role from the private sector. The prospect of private sector "digital dollars" scared some politicians when Facebook (Facebook shares - Ticker: FB) announced its Libra cryptocurrency last June, but recently Powell and his colleagues have begun to look favorably on different forms of collaboration in the private sector. After all, falling behind could be even worse.

A difficult decision for the US dollar

All in all, the Federal Reserve's cautious approach is understandable: it is a historically conservative institution and, as the issuer of the world's reserve currency, would have much to lose if its CBDC attempts fail.

However, there is a risk that this waiting will come at a higher cost. As CFTC President Heath Tarbert candidly admitted at DC FinTech Week, "The only thing that scares me is that the US is falling behind [on CBDC]."

The United States faces an urgent decision on whether to join other countries and start work, openly and urgently, on a digital currency that would complement paper money. As difficult as the decision may be, what could be even worse is waiting and falling behind.