Does the US need a digital dollar? Fight drags on, other countries advance

For thousands of years, humans have used physical money to pay for goods and services. But in a time where people can answer an international call from a watch, do they really need that wad of cash? Or is it time for a digital dollar?

In the U.S. and around the world, there’s growing movement behind the development of central bank digital currencies, or CBDCs, which digitize a country’s national currency.

“This would enable money to move as easily as a text message,” said J. Christopher Giancarlo, former chair of the U.S. Commodity Futures Trading Commission and author of “CryptoDad: The Fight For the Future of Money.”

The case for a digital currency

“We’re talking about digital money that would actually move from one mobile device to another person’s mobile device without having to send a whole series of messages back to some financial institution to move liabilities,” Giancarlo said.

While money seems to transfer seamlessly on the consumer side by tapping Apple Pay, swiping a credit card or even sending a Venmo transaction, in reality, bank transactions are not immediate and often incur fees, especially to move liabilities quicker.

A digital dollar could take banks out of the equation, meaning sending money internationally could be a lot cheaper; small business could avoid credit card procession fees and for millions of Americans without bank accounts, a digital dollar could allow them to shop online for the first time.

Unlike cryptocurrencies, which don’t have a central issuing or regulating authority, CBDCs would be backed by the full faith and credit of the government. In March of this year, President Joe Biden issued an executive order strongly endorsing U.S. development.

“We’re looking at it very carefully,” Federal Reserve Chair Jerome Powell said in September. “We’re evaluating both the policy issues and the technology issues. And we’re doing that with a very broad scope. We have not decided to proceed. And we don’t see ourselves as making that decision for some time.”

International development

But that also means the U.S. is behind more than 50 other countries that are developing, piloting or have even launched CBDCs, according to an Atlantic Council tracker. Most notable in the group is China, which has more than 250 million people piloting its digital yuan.

“There’s no question that China is dominating the development of this innovation, and we cannot sit by as a free society and sit out this technological evolution,” Giancarlo said.

Giancarlo argues the Chinese version is full of censorship and surveillance. In October, China announced that its digital yuan is ready for cross-border use.

“The game is afoot. If we’re going to sit out the development of those standards, it’s very likely that the Chinese values of digital money will prevail,” Giancarlo said. “In the same way that the United States led the evolution of the Internet and that privacy was assured of it, we need to make sure that we do the same when it comes to digital money.”

The case against a digital dollar

Of course, not everyone thinks the U.S. should get in the game. Federal Reserve Governor Christopher Waller is a prominent, outspoken skeptic.

“As I have said before, I am highly skeptical of whether there is a compelling need for the Fed to create a digital currency,” Waller said Friday during an event held by the Harvard National Security Journal.

Waller has repeatedly warned that the costs and risks could far outweigh any benefit, questioning that a CBDC would solve “any major problem confronting the U.S. payment system.”

“That we want to open ourselves up to this extreme cybersecurity risk? And a CBDC would be a very tempting target,” he said in 2021.

The banking industry is also loudly opposed, arguing the Fed should instead look to leverage developments in the private sector.

But while the U.S. studies its role in the space, the international community is busy making breakthroughs. After months of experiments, international banking system SWIFT is claiming they can be the single gateway for a global CBDC system.