Payments giant Western Union is collaborating with a $75 billion bank to study the effects of a US central bank digital currency (CBDC). According to a new press release, Western Union and Philippines-based BDO Unibank are working together to explore how the implementation of a US CBDC, or a digital asset issued and backed by […]
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Fanusie doesn’t believe the Chinese-led CBDC movement on the global stage will replace the U.S. dollar, but it may cause a series of geopolitical headaches.
A cryptocurrency researcher and former CIA analyst believes the United States government’s relatively slow start on Central Bank Digital Currency (CBDC) development may result in it losing grip on controlling the global financial system.
Yaya Fanusie, the policy head at the crypto advocacy group the Crypto Council for Innovation explained in a Feb. 28 Bloomberg interview that sanctioned states are looking to transact on financial infrastructure that isn’t controlled or heavily influenced by the U.S. in order to move funds more freely cross-borders.
If the U.S. continues to sit on the “sidelines” and lag behind on CBDC adoption, Fanusie believes this may spell “trouble” and cause unforeseen “geopolitical implications” over time:
Fanusie explained that state-issued CBDCs could be a part of this financial infrastructure that becomes globally adopted, and that if the U.S. has little influence over these new standards, then this “impacts U.S state economic statecraft.”
“The potency of our sanctions power comes from the centrality of the U.S. to the financial global infrastructure. So if that shifts a little bit, it doesn't mean that China is going to take over or that the yuan is going to displace the dollar but if there's a viable new rail where sanctioned actors can now transact, that’s trouble.”
The U.S. Federal Reserve has however recently made progress on its CBDC — the Digital Dollar Project — having released the latest version of its whitepaper on Jan. 18:
Today we are proud to release DDP's 2023 white paper update where we revisit our "champion model" proposed in 2020, provide recommendations to the US government and private sector and look ahead to the next stage in #CBDC developments @giancarloMKTS https://t.co/bX5u4zfqMc pic.twitter.com/si2joxbkq9
— The Digital Dollar Project (@Digital_Dollar_) January 18, 2023
However, the Federal Reserve has not received approval from the U.S. government to proceed with the CBDC project.
Fanusie highlighted that China has benefited from a near-first mover advantage, having explored CBDCs since 2014 and launching the pilot version of its digital yuan (e-CNY) on Jan. 4, 2022, which Fanusie says has processed “millions of transactions” across “millions of wallets” so far.
Fanusie added that there is an “array of pilots” testing out smart contracts to add programmability into the CBDC and that China helping other countries adopt similar standards.
He added there is possibly an unspoken “race” going on in the CBDC frontier as nations look to gain a geopolitical edge.
“That's happening whether we want to like it or not.”
However previous commentators on the CBDC race between China and the U.S. have said that China’s CBDC ambition is purely about domestic dominance rather than trying to beat the U.S. dollar.
Related: What are CBDCs? A beginner's guide to central bank digital currencies
CBDCs run on state-controlled ledgers, which are reported to be more efficient and easier to use in some cases than decentralized public networks, such as Bitcoin and Ethereum.
However, some opponents of CBDCs believe states are adopting blockchain-powered CBDCs to maintain a degree of financial control over their citizens.
Part of the pushback in the U.S. recently came from pro-crypto U.S. Congressman Tom Emmer, who recently introduced the CBDC Anti-Surveillance State Act in an effort to protect the financial privacy of U.S. citizens from actions by the Federal Reserve:
Today, I introduced the CBDC Anti-Surveillance State Act to halt efforts of unelected bureaucrats in Washington, DC from stripping Americans of their right to financial privacy. pic.twitter.com/lONbHFZMk7
— Tom Emmer (@GOPMajorityWhip) February 22, 2023
The non-profit organization promoting the creation of the digital dollar, the Digital Dollar Project, has announced the launch of a sandbox program to kickstart the probe of the technical implementations of the envisaged digital currency. The fintech firm Ripple is among the four participants that are expected to help the Digital Dollar Project “explore technical […]
The Digital Dollar Project’s Technical Sandbox Program is set to begin in October, aiming to provide a clearer understanding of the ramifications of a United States CBDC.
A United States think tank has launched a “technical sandbox” aimed at advancing the exploration of a potential United States central bank digital currency (CBDC).
In a Wednesday Tweet from Digital Dollar Project (DDP), the organization said the new program would explore “technical and business implementation” questions revolving around a U.S. CBDC.
The organization noted that the initial participants of the sandbox include crypto-firm Ripple, financial technology company Digital Asset, software platform Knox Networks and banking solutions firm EMTECH.
The Technical Sandbox Program aims to give the federal government, policymakers and the private sector a clearer understanding of how a potential CBDC would be rolled-out.
This includes the potential implications to retail and wholesale and international use cases such as cross-border payments.
The U.S Federal Reserve has yet to decide whether or not it will implement a CBDC but has been exploring the potential risks and benefits that come with them.
On Jan. 20, it released a discussion paper examining the pros and cons of CBDCs but neglected to give any hints about its future plans.
The paper suggested that CBDCs could act as digital money free from credit and liquidity risks, improve cross-border payments, help preserve the dominance of the U.S dollar, promote financial inclusion and extend public access to safe central bank money.
Potential risks found included a changed U.S financial system, more severe bank runs for other forms of money, reducing the power of monetary policy, operational resilience and a difficult balance between transparency and safeguarding consumer privacy rights.
Meanwhile, China’s own CBDC, the digital yuan, is quickly being rolled out across the country, while the same is occurring in Nigeria with the eNaira. The Bahamas and countries of the Eastern Caribbean Currency Union have also launched CBDCs, while Russia is set to roll out its own in 2024.
The FedNow service, an instant payment service set to be launched in mid-2023, aims to begin “technical testing” in September, according to a Monday press release. FedNow is seen as a step toward an eventual CBDC.
Davis Wright Tremaine LLP partner Alexandra Steinberg Barrage, a former FDIC policy expert, tweeted her support for the program on Wednesday. Barrage suggested that regardless of what your views are on a U.S. CBDC, pilot programs and data are essential when evaluating new tech.
No matter your views on a US CBDC (retail , wholesale), it's important to evaluate tech approaches alongside varied and complex policy issues. W/out data, robust public/private-pship, & pilots w/consumers and intermediaries, we cannot sharpen our thinking. @Digital_Dollar_ https://t.co/xLy02IOz6b
— Alexandra Steinberg Barrage (@alexbarrage1) August 31, 2022
The Technical Sandbox Program is set to begin in October with cross-border payments being the initial focus for the early participants.
The program is set to be released in two separate phases, including an educational phase and a pilot phase.
During the educational phase, providers and participants will seek to understand the technology from both a functional and business perspective. While in the pilot phase, the focus will be on identifying and testing specific ways in which CBDCs can be utilized.
Related: Fed and MIT's CBDC research: Distributed ledger tech has ‘downsides’
The Digital Dollar Project is a partnership between the not-for-profit organization Digital Dollar Foundation and IT consulting firm Accenture. DDP seeks to encourage research and discussion around a U.S. CBDC and released a white paper proposing a tokenized U.S. digital dollar in May 2020.
