A Central Bank Digital Currency Would Be Bad for the US
There is a frenzied, albeit inaccessible, debate among think tanks, policy experts, and the media signaling that the US Federal Reserve should launch a centrally issued digital twin of the US dollar.
Among the many arguments why this is necessary is that the US is losing ground to China, whose government has a national blockchain strategy, including a real-world prototype central bank digital currency (CBDC). While these arguments are valid, they overlook the bigger point, which is that under today's highly competitive digital currency and blockchain standards, the US may not be a laggard at all, but is already winning the race for the future of money and payments.
Dante Alighieri Disparte is Chief Strategy Officer and Head of Global Policy at Circle, a digital financial services company and architect of USDC, a dollar-pegged digital currency. He is also a member of the National Advisory Board of the Federal Emergency Management Agency, founder and chairman of the Risk Cooperative, and a member of the World Economic Forum's Digital Currency Governance Consortium.
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In trying to "get China out of China" on these important issues, we miss that the future of money and payments should be to improve the domestic financial option. Improving payment and banking systems, improving interoperability, and improving open banking standards requires major improvements to the technology stack that supports value transfer and more open innovation in financial services.
This was illustrated by the original version of the COVID-19 relief act, the Cares Act, which called for the creation of a digital dollar to expedite domestic stimulus payments while trustworthy, privately issued digital currencies were already in circulation and a growing and interoperable blockchain-based one Payment system.
Older finance lines like ACH, EFT and other interbank remittance networks have not been updated in 50 years. Blockchain-based payment systems mark the completion of much of the unfinished business in the financial services value chain that has left more than 1.7 billion people around the world as unbanked and not a source of interference or bypasses. China's fintech and mobile money titans together process over $ 67 trillion a year. This alone does not pose a threat to the US dollar as a global reserve currency. The vibrant crypto asset industry that is at home in the US has been campaigning for a more open global payment system for years.
A true Internet of Value would advance important first principles such as privacy, trust, asset democratization, and prosperity, rather than adhering to outdated and largely ineffective financial rules like the Banking Secrecy Act.
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The lowest level of economic mobility is access to inexpensive payments. In a world where individuals rely on nationally issued identities, billions of people are on the brink of finances - a source of global risk and destabilization. We need new forms of digital financial services and digital identification and authentication native to the Internet that protect privacy but ensure that financial crime compliance standards are met and modernized.
A $ 2 trillion industry grew largely out of public digital goods rather than the risky and costly technologies implicated by a government-administered CBDC.
The US should lead the way on both fees, promoting open internet-based financial services while enabling new forms of inclusivity. We should aim to be a pioneer in building a valuable internet for digital assets, identity, and other breakthrough innovations.
The investors, entrepreneurs, and various teams building this new wave of platforms are increasingly at home in the United States, fueling US economic competitiveness and recovery from COVID-19. COVID-19 revealed areas of pre-pandemic vulnerability, including our inability to conduct financial transactions domestically and via poverty alleviation corridors. We should be able to share values, monetize and own digital assets, and build internet-based financial services companies with regulatory clarity.
In the first decade of blockchain, digital currencies, and crypto-assets, a $ 2 trillion industry was born, largely based on public digital commons rather than risky and costly technologies created by a government-managed CBDC and the technology risk on the public relocated sector and thus on the taxpayer.
The more the US leverages these financial innovations and industries of the future, the greater the prospects for increasing prosperity and internet access. The meteoric rise of nine-year Coinbase, a crypto-indigenous financial exchange that is now the most valuable exchange in the United States, is a symbol of this opportunity. Evidence of regulatory clarity and a national industrial policy that includes exponential technologies like blockchain can make all facets of our economy more resilient, future-proof and competitive.
Protecting vulnerable critical infrastructures that are at risk from the dual threat of climate change and single point of failure designs, like the Colonial Gas Pipeline that has been hampered by a ransomware attack, is one reason for blockchain-based thinking . The same applies to the emptiness of open banking and finance access across the country. Providing secure e-voting or authentication options that can increase trust online without revealing personal information can improve the US national competitiveness and international standing at the same time.
The quickest way to disrupt the financial system that has made the US the economic and political envy of the world is to succumb to the pressures of the adoption of a centralized digital currency. While the U.S. banking and financial system can improve its handling of rampant cyberthreats and an impossible digital transformation agenda favoring the nation's largest banks, CBDCs would disrupt the two tier banking system while delivering uncertain outcomes for consumers and markets.
The two-tier banking system is the structure that enables well-known banks to get in direct contact with a country's central bank, improve consumer protection and regulations, and at the same time allow central banks to mediate monetary policy. The democratic promise of cryptocurrencies and digital currencies is the ability to drive internet-level prosperity and merchant acceptance - the technological equivalent of digital legal tender, while importing solid monetary policy.
A free market based movement is driving fundamental, open, and compliant innovation in the movement of money and value on the Internet. This digital currency and blockchain economy is building the next generation of digital financial services companies in the US and around the world, creating thousands of jobs and an oversized share of market value. That the majority of stable coins in circulation today are pegged to the US dollar for asset purposes shows how fundamental confidence in the US dollar as the global reserve currency of choice is maintained by digital currencies that are not bypassed by them .
Issuing a digital US Federal Reserve dollar carries significant risks. Most of the money in circulation today is driven on private or consortium-supported rails. A US CBDC would carry significant technological and operational risk from the private sector, which powers safe and well-regulated digital currencies and assets on public blockchains, to the US public balance sheet - and therefore borne by taxpayers. Privacy and censorship are also protected by a highly competitive, rules-based market rather than government-issued general-purpose digital currency.
We need public-private assets that will make the US dollar the benchmark for all types of value creation activities. Whether on paper bills or on coins, plastic cards or in the case of dollar digital currencies in code - the key is to offer the full trust and creditworthiness of the US economy across a range of payment instruments and tracks. Ultimately, this will be good for consumers, business and global security.
Digital dollar currencies, backed 1: 1 with assets preserved in the US two-tier banking system (like USDC), import all of the security, solidity and values of the US dollar and charge it with the power of the internet. Holidays don't take your financial needs, and neither does your money.
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