The possibility of the Federal Reserve Bank launching a US Dollar CBDC without Congressional legislation and approval is slim to none. With catchy slogans like “The Future of Money” being pushed into the financial system narrative, can U.S. Lawmakers be persuaded to release the Kraken of all CBDCs?
Personally, I do not think a US Dollar CBDC will gain enough congressional support to come into reality. Yet, competition from other nations and central banks will heavily weigh in on a final decision.
And we all know how much politicians love to use slogans to sell the public on new legislative proposals.
As such, we are likely to hear the term “The Future of Money” frequently over the coming months.
The proposed U.S. CBDC would be an intermediated retail digital currency, allowing both traditional banks and non-bank entities to offer wallet services.
Consequently, I thought it would be worthwhile to summarize one example of this process as Congress gears up for the great CBDC battle ahead.
If U.S. CBDC legislation fails to pass, we must still be vigilant and aware of other legislative provisions that allow the transition of future monetary policy and currency onto a Centralized (or Unified) Digital Financial Ledger and the Tokenization of our financial assets.
For the “Future of Money”
Below is as factual example of how the some in the United States Congress are approaching the creation and implementation of a US Dollar CBDC
In a 15-page, June 2022 proposal, U.S. Congressman Jim Himes of Connecticut has put forward a white paper titled “Winning the Future of Money: A Proposal for a U.S. Central Bank Digital Currency (CBDC).“
As the digital equivalent of the U.S. dollar, the CBDC could reinforce the dollar’s position as the global reserve currency, ensuring its stability and continued use in international transactions.
The document outlines a comprehensive strategy for the issuance of a CBDC by the U.S. Federal Reserve Bank, addressing what, how, and why behind this transformative issue in the context of potential U.S. Legislation.
What is the Future of Money Proposal?
The central focus of Congressman Himes’ proposal is the creation and implementation of a U.S. CBDC, a digital representation of the U.S. dollar issued by the Federal Reserve.
This digital currency, distinct from current forms of digital money, aims to leverage the full faith and credit of the U.S. government, providing a secure, efficient, and transparent alternative to existing payment systems.
To CBDC or not to CBDC: The Pros & Cons
Here a short list of the key benefits and concerns around CBDCs from the White Paper:
Benefits
- Security and Trust: The U.S. CBDC would leverage the full faith and credit of the U.S. government, providing a secure and trusted platform for innovation, reducing risks associated with privately issued stablecoins.
- Global Reserve Currency: As the digital equivalent of the U.S. dollar, the CBDC could reinforce the dollar’s position as the global reserve currency, ensuring its stability and continued use in international transactions.
- Financial Inclusion: The CBDC has the potential to bring the unbanked and underbanked into the financial system by providing a safe, accessible, and inclusive digital alternative to traditional banking.
- Efficiency and Innovation: Integration of the CBDC into existing payment systems could enhance the speed, efficiency, and cost-effectiveness of wholesale banking activities, fostering innovation and modernization in the financial sector.
- Consumer Benefits: The CBDC could offer consumers a secure and reliable alternative for transactions, reducing costs for international money transfers, enabling faster settlement times, and providing additional financial security.
Concerns
- Privacy Risks: The collection of substantial personally identifiable data and transaction history raises privacy concerns, potentially compromising the anonymity currently associated with physical cash transactions.
- Impact on Commercial Banks: There is a risk that under certain conditions, the CBDC might be seen as a substitute for commercial bank money, leading to reduced deposits in the banking system and potentially impacting credit provision.
- Cybersecurity Vulnerabilities: Storing consumer data in a CBDC could make it an attractive target for cybercriminals, necessitating robust cybersecurity measures to protect against unauthorized access and data breaches.
- Regulatory and Legal Challenges: The development and deployment of a U.S. CBDC would require clear and comprehensive regulatory frameworks to address issues such as user identification, privacy, and adherence to legal due process.
- International Competition: As other nations explore CBDC projects, a delay in U.S. adoption might impact the dollar’s global reserve currency status. The U.S. needs to stay competitive in the rapidly evolving landscape of digital currencies.
How Will the US Dollar CBDC Work?
The proposed U.S. CBDC would be an intermediated retail digital currency, allowing both traditional banks and non-bank entities to offer wallet services.
Congressman Himes emphasizes the importance of integrating non-bank participants to encourage innovation, competition, and extend CBDC services to a wider population, including the unbanked and underbanked.
To address privacy concerns, the CBDC’s architecture would incorporate encryption proofs and privacy solutions, and a rigorous system of user identification.
The proposal advocates for a careful balance between safeguarding consumer privacy and deterring criminal activity, with public participation playing a pivotal role in shaping CBDC privacy features.
Furthermore, the proposal underlines the adaptability of the U.S. CBDC, designed to embrace future payment innovations and technological trends. It suggests that CBDC intermediaries should have tailored access to the system, promoting a harmonious relationship with existing payment products and services.
In the face of global developments, including the active consideration of digital currencies by other nations, Congressman Himes asserts that the U.S. must not lag behind.
Why a U.S. CBDC?
Congressman Himes’ goal is to provide a compelling case for the issuance of a U.S. CBDC, citing several key reasons.
First and foremost, a CBDC would offer a secure and trusted platform for innovation (the future of money), exclusively leveraging the full faith and credit of the U.S. government. This could position the digital dollar as a global reserve currency, ensuring its continued strength and stability.
The proposal also emphasizes the potential for a U.S. CBDC to address inefficiencies in the current payment system, promote financial inclusion, and contribute to the fight against illicit financial activities. By providing a safe, reliable, and transparent network, the CBDC could become a catalyst for entrepreneurship and transformative payment technologies.
In the face of global developments, including the active consideration of digital currencies by other nations, Congressman Himes asserts that the U.S. must not lag behind. A CBDC, backed by the U.S. government, would ensure the nation remains at the forefront of financial innovation.
Source
Rep. Jim Himes White Paper: Winning the Future of Money: A proposal for a US Central Bank Digital Currency.
