According to global accounting firm PwC’s inaugural CBDC global index, which tracks various central bank-issued digital currency (CBDC) project status from research to development and production, the U.S. ranks 18th in the world. America’s efforts trail countries like Sweden, South Korea and China but also countries like the Bahamas, Ecuador, Eastern Caribbean and Turkey.
China, with its government’s hyperfocus on maintaining control and overseeing data, has been working to develop a CBDC for almost a decade.
Analysts like Harvard economics professor Kenneth Rogoff estimate that the U.S. could be at least a decade away from issuing a digital dollar backed by the Fed. In that time, the modernization of China’s financial markets and reduction or removal of its currency controls “could deal the dollar’s status a painful blow.”
China has already largely moved away from coin and paper currency; Chinese consumers have racked up more than $41 trillion in mobile transactions, according to a recent research paper from the Brookings Institution, with the lion’s share (92%) going through digital payment processors WeChat Pay and Alipay.
Not only is the U.S. running significantly behind in the development of a CBDC, it is trailing the rest of the world in digital payments broadly. Kenya, for example, has almost fully digitized its economy through its digital currency and payment system MPESA, making transactions free and almost instantaneous. India’s Unified Payments Interface (UPI) allows users to transfer money instantly between bank accounts with no cost. Brazil’s PIX facilitates the transfer of money between people and companies in up to 10 seconds. All of these programs work through and are overseen by the countries’ central banks rather than commercial banks or other private companies.
Critics argue CBDCs are simply a solution in search of a problem and potentially harmful. Many see support from the banking sector as vital to the success of a digital U.S. dollar, however commercial banks in the U.S. have taken a largely adversarial stance.
Even disruptive financial technologies like PayPal, Venmo and Zelle work through the banking system, rather than around it, thanks in large part to the banks’ power.
Central bankers also generally have concluded that commercial banks are a necessary piece of a potential CBDC ecosystem, thanks to their pre-existing regulatory guardrails and ability to move money. Top policymakers at the Fed, including influential Vice Chair for Supervision Randal Quarles, have joined the banking industry in arguing that a digital dollar “could pose significant and concrete risks” and that the potential benefits “are unclear.”
While dollar dominance has rankled much of the world for decades, there has been no suitable replacement for the U.S., with its massive economy, sophisticated banking system and sprawling international presence.
China is in the midst of a long-term push to simultaneously grow its financial markets and internationalize its currency. Both have the end goal of allowing China and its allies to limit the ability of the U.S. to enforce its will through economic sanctions.
However, the renminbi will not become the world’s reserve currency. But what China has done by being in the forefront of CBDC development is put itself in position to take the lead on development and implementation of rules and regulations for digital currencies on a global scale.
Over the past decade, digital currencies, including cryptocurrency and “stablecoins,” have sprung up like weeds. Some purport to be just as safe as dollars, but are backed by questionable assets. In a crisis regulators worry they could fluctuate wildly in value or lose their value altogether.
Having central banks, which are responsible for the printing and circulation of coins and paper money, issue digital currencies is in part a reaction to this private sector activity.
Where is Malaysia? The central bank has been keen on digital payments and online banking. Consumers remain a little reticent because of security issues. On CBDC, BNM will probably follow China or the U.S. in its development, unless ASEAN central banks come together for a common digital currency. A thought worth considering?
Source: https://www.worldfinance.com
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