The fiery central bank digital currency (CBDC) research and development has opened up a new track for competition between countries, and the smoke of a new round of currency war has quietly started.
Last week, in the context of the global financial market turmoil and the collapse of Bitcoin, Fed Chairman Jerome Powell and U.S. Treasury Secretary Janet Yellen frequently spoke out to “platform” the digital dollar , Became a hot topic of discussion.
“This year will be the year when the Federal Reserve and the public are in contact with the digital dollar.” On February 23, Jerome Powell stated that the digital dollar is a “high priority” project. Compared with the previous situation in the digital dollar white paper, this seems to indicate that it has entered an acceleration stage.
In an interview with The New York Times the day before, Janet Yellen believed that the Fed’s research on the issuance of a digital dollar made sense, and that a blockchain-based digital dollar maintained by the Fed might lead to faster, safer and more secure Cheap payment method.
However, there is still no central bank digital currency in real circulation in the world. As a latecomer to the central bank digital currency, although the digital dollar still has many problems to be solved in terms of technology, policy, and supervision, people have never stopped imagining a better central bank digital currency.
New positive signals for the digital dollar
Since last year, in the face of the pressure of the development of digital renminbi (DC/EP), the Fed’s attitude towards the digital dollar has become more positive. Analysts believe that although the United States is lagging behind in the digital dollar, it still has time to catch up.
In May 2020, the Digital Dollar Foundation, a non-profit organization founded by Christopher Giancarlo, former chairman of the US Commodity Futures Trading Commission (CFTC), released its Digital Dollar Project The first white paper.
Overall, the white paper provides the Fed with a logical framework for the high-priced CCTV digital currency, and lists the design requirements and existing problems, and suggests that the domestic and international payment scenarios should be deployed as soon as possible to maintain and consolidate the global reserve of US dollars. Currency hegemony.
Bloomberg strategist Mike McGlone tweeted that the market wants digital dollars and Bitcoin to become reserve currencies. If anyone is worried that the U.S. dollar will lose its status as the world’s reserve currency, we believe that the rising wave of digital assets will be the opposite. The most widely traded cryptocurrency is Tether.
“The current financial system is outdated.” Christopher Giancarlo once said that in recent years we have seen a new wave of digitization in the world. The Federal Reserve must issue a digital currency to compete with China’s digital renminbi. At the same time, he believes that innovative products such as Bitcoin and Libra have their own “value proposition.”
Even so, Randal Quarles, the Fed’s Vice Chairman of Supervision, believes that the Fed’s position on digital currencies is still in the formative stage. He said that the Fed has always been interested in the possibility of central bank digital currency, and the emergence of government-supported payment systems around the world has prompted the Fed to further study possible U.S. payment systems. However, the Fed is now weighing the pros and cons.
Last week, Jerome Powell said that he is carefully studying whether the Federal Reserve should issue a digital dollar. This year will be the year when the Federal Reserve and the public have contact with the public on the digital dollar. Currently, the Boston Federal Reserve is cooperating with the Massachusetts Institute of Technology on digital currency research.
Jerome Powell also stated at the hearing of the House of Representatives Financial Services Committee that no design related to the digital dollar project will be allowed to harm the US financial system. The subsequent launch of the digital dollar also requires legislative approval. At the same time, the Fed is more concerned about whether it has made the right decision than the speed at which it competes with other countries.
Five prerequisites “constraint”
Last Wednesday, the Fed published a new paper expounding some prerequisites for the Fed to consider launching a digital dollar. This substantive discussion has aroused widespread concern.
The Federal Reserve believes that the issuance of central bank digital currency is not easy, and many basic elements are required for its realization. The paper stated that if the United States determines to support a central bank digital currency based on general purpose, it must meet five necessary prerequisites, clear policy goals, a wide range of stakeholders, a sound legal framework, strong technical support, and a sound market ready.
The paper explains that, first, clear policy objectives are the key to guiding the central bank’s digital currency design; second, the establishment of a wide range of stakeholder support to complete the necessary social and legal changes, so as to improve the society’s perception of currency and Americans Currency usage; third, a strong legal framework needs to provide a legal basis for the issuance, distribution, use and destruction of central bank digital currency; fourth, central bank digital currency must have strong technical support to ensure its safety and efficiency; fifth is the need Be prepared for the market so that it can be widely accepted and adopted.
They believe that these prerequisites and the efforts to achieve them are interrelated, and each prerequisite takes a lot of time to achieve. Therefore, the development of one prerequisite may lead to the development of another. And these developments may strengthen or weaken the power of the issuance of universal central bank digital currency transformation.
In fact, this report is positioned as a starting point for further discussions, rather than a clear indicator of the Fed’s future actions. According to the paper, contact with a wide range of stakeholders and monitoring of market readiness can provide information for clear policy goals, and the paper does not intend to prescribe how to deal with these prerequisites. Its purpose is to stimulate further research. There is still a lot of work to be done before the Fed decides whether and how to advance the central bank’s digital currency.
“This is a new digital form of U.S. dollar. Together with traditional legal tender, banknotes and reserves, digital U.S. dollars enjoy all the faith and credibility of the U.S. government like central bank currency.” Last year, Christopher Giancarlo pointed out that, The Digital Dollar Project aims to support retail, wholesale, and international payments under the premise of ensuring scalability, security and privacy.
He believes that the digital dollar not only provides financial inclusion, but also involves the ever-changing financial architecture. It will also promote economic growth and must be implemented carefully, thoughtfully, and calmly. Therefore, when exploring a new form of currency, the digital dollar, the United States must make policy choices. Congress and policy makers play a vital role here.
Jerome Powell stated that the Federal Reserve will pay attention to the “challenging” policy and technical issues related to the digital dollar, and the digital dollar is likely to require legislative authorization. We need to be cautious about the design of digital dollars so as not to disrupt market functions.
CBDC advances cautiously and positively
On a global scale, countries are intensively deploying central bank digital currencies. Industry analysts believe that in the future digital economy and society, the field of digital currency is full of new opportunities.
On January 17, the Bank for International Settlements (BIS) released a central bank digital currency research report. According to the third central bank digital currency survey, 86% of central banks stated that they are at least considering the pros and cons of issuing digital fiat currencies. 80% of last year.
The research report pointed out that 60% of central banks are currently conducting central bank digital currency experiments or proof-of-concepts, while this data was only 42% in 2019. The Bank for International Settlements also stated that in the next three years, central banks representing one-fifth of the world’s population are likely to issue universal central bank digital currencies.
On February 14, Li Lihui, former governor of the Bank of China, issued an article saying that the policy attitudes and specific actions of most countries in the world indicate that the issuance of central bank digital currency is no longer a question of “should”, but a credible technological innovation and feasible The question of the length of time required for system innovation. While people are full of expectations, they pay special attention to the possible changes in the central bank’s digital currency: first, changing the pattern of the payment market; second, changing the pattern of banking competition; third, changing the pattern of money market supervision; fourth , Changing the pattern of the global monetary system.
However, although research on central bank digital currencies has gradually emerged in various countries, it may still take several years before the global adoption of central bank digital currencies. According to the 2019 survey data of the Bank for International Settlements, half of the central banks stated that they are “possible” to issue central bank digital currencies in the short term, and in the 2020 survey, they lowered this sentiment to “probable” or “unlikely” “.
At the same time, among the central banks under investigation, the Bank for International Settlements also noticed that the legality of central bank digital currencies is still an unresolved issue.
Nevertheless, in the context of other countries developing their own digital currencies, the Federal Reserve has become one of the countries that actively study central bank digital currencies, and its economists are exploring the so-called “intrinsic value” of the digital dollar. Jerome Powell pointed out that the digital dollar will not affect the implementation of monetary policy, but there are still many problems to be solved in the technical and related policy formulation of the digital dollar, and there are also certain risks. This is why the implementation of the digital dollar cannot Urgent cause.
Analysts believe that the positive signals from the United States will act as a catalyst to accelerate the development of digital currencies by central banks around the world.
On the other hand, after Shenzhen, Suzhou, Beijing and other places, Chengdu has become the fourth city in China to carry out special digital RMB testing activities. Judging from the information disclosed in many places recently, the second batch of pilot cities may add six places including Shanghai, Changsha, Hainan, Qingdao, Dalian, and Xi’an.
This shows that, driven by many countries, the global development of central bank digital currencies has become increasingly clear. As stated in the economic reference newspaper article “Digital RMB Optimizes my country’s Monetary Payment System”, this is not only an inevitable trend in the evolution of currency patterns, but also an inherent demand for the development of the digital economy.
Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.