The establishment of a U.S. central bank digital currency (CBDC) could help ensure that the U.S. dollar maintains its prominence in international markets, an expert testified before the U.S. House Subcommittee on National Security, International Development and Monetary Policy on Tuesday (July 27).
Robert M. Baldwin, head of policy for the Association for Digital Asset Markets, pointed out that “strong rule of law and dynamism” have let the dollar become the “preeminent global reserve and transaction currency,” which accounts for more than 60 percent of transactions worldwide — even though the U.S. comprises approximately a fifth of worldwide gross domestic product (GDP).
When modernizing its payment system, he said the U.S. “should seek to establish a consumer-friendly system that benefits domestic consumers while also making itself attractive for use in international business.”
“Such a system prioritizes low-cost and fast payments, individual privacy, transaction transparency and data control, and ultimately ensures that the U.S. dollar maintains its prominence in international markets. One such way to accomplish this is through the establishment of central bank digital currency,” Baldwin said.
A CBDC system provides the possibility of speed and cost benefits, while it “offers promise in areas such as financial inclusion and improved cross-border transactions,” he added. “However, a well-designed CBDC is a considerable undertaking and will require many intentional design choices.”
Baldwin noted that another option is a regulated private sector-led stablecoin that’s endorsed by and coordinated with the federal government.
Julia Coronado, president and founder at MacroPolicy Perspectives, who teaches economics to business school students at UT Austin, said during the hearing that she stresses to her students that “the U.S. dollar did not become the global reserve currency overnight.”
“Digital currencies present a challenge to the U.S. and other countries, and we must rise to that challenge. If we do it well, we can improve the safety and soundness of our financial system and enhance the equity and efficiency of monetary policy,” she said.
Mr. Yaya Fanusie, adjunct senior fellow for the Energy, Economics and Security Program at the Center for a New American Security, said that CDBCs “inevitably, I believe, will become some part of our global economic landscape.”