Where Does the U.S. Stack Up in the Race for a Central Bank Digital Currency?

By Nasreen Quibria

As more people chase the unregulated crypto market of rising stablecoins, an emerging shadow bank ecosystem threatens community banks’ business models.

Like money market funds that nearly brought down the financial system in 2008, privately operated stablecoins of questionable backing pose their own systemic concerns. With a combined market cap worth $100 billion and growing, the two largest stablecoins—Tether and USDC—lack bank-like rules for transparency, liquidity, and capital.

CBDC to the rescue?

Introducing a central bank digital currency could be one solution that addresses the heightened risk from these digital assets and undercuts the stablecoin momentum.

Benoit Coeure, the head of the Innovation Hub at the Bank for International Settlements (BIS), recently urged countries to accelerate their CBDC efforts in response to the shifting world of finance. “A CBDC's goal is ultimately to preserve the best elements of our current systems while still allowing a safe space for tomorrow's innovation,” he said. “To do so, central banks have to act while the current system is still in place—and to act now.”

Global update

So, where are countries in the development of national digital currencies?

• Five emerging countries in the Caribbean have launched a digital currency. The Bahamas Sand Dollar was the first to go live in October 2020 and is now widely available. Meanwhile, the Eastern Caribbean is the first currency union central bank to issue a digital currency, DCash, which was rolled out in four of the eight member countries—Antigua and Barbuda, Grenada, Saint Kitts and Nevis, and Saint Lucia.
• Among developed nations, China has raced ahead after nearly seven years of research. To date, around 140 million people (or about 10% of the country’s population) have used the digital yuan mobile app. China continues to accelerate its effort to encourage the adoption of digital currency by creating gadgets such as bracelets, wristbands, and smartwatches supporting the digital wallet. 
• Another 14 countries, including major economies like Sweden and South Korea, are in the pilot phase of their national digital currencies.
• Elsewhere, geographies with the largest central banks—the European Central Bank, the Bank of Japan, and the Bank of England—are all in exploratory stages.
• At the same time, central banks from Australia, Malaysia, Singapore, and South Africa are actively testing the world’s first cross-border CBDC exchange program.

U.S. status

Meanwhile, global accounting firm PwC places the United States 18^th in its ranking of CBDC research, development, and production. Critics argue the U.S. lags behind the rest of the world, which has geopolitical and economic implications.  

In reality, the U.S. is hardly trailing the rest of the world. The Federal Reserve Bank of Boston began investigating a wholesale CBDC as far back as 2016. The Boston Fed and MIT will soon offer insights into the technical findings from their retail CBDC experimentation.

Separately, the Federal Reserve Board is working to publish a report seeking public input on policy and technical considerations that will cover both CBDC and stablecoins.

The reports are coming at just the right time. As Senate Banking Committee Chairman Sherrod Brown (D-Ohio) has noted, many fintech firms operate on an unlevel playing field without the regulations, consumer protections, and personal relationships of the nation’s community banks.

As private companies move deeper into the digital currency space and rival countries challenge the status of the U.S. dollar, ICBA will represent the community bank perspective, advocating for an infrastructure that preserves the role of financial institutions while preparing them for the future of money.