Just how fast is the United States moving toward a central bank digital currency and in what form? Is it something banking executives need to worry about? A detailed new paper confirms that the technology is moving forward, even whiled debate continues over policy questions.
Patrick Toomey, ranking Republican member of the Senate Banking Committee, is worried about the U.S. getting lapped by China. He wrote to Treasury Secretary Janet Yellen and Secretary of State Antony Blinken, asking to have their staffs observe and investigate the rollout for international users of China’s central bank digital currency during the Winter Olympics.
“The importance of remaining a leader in the global digital economy and supporting new innovations like digital currencies is a significant domain of strategic competition with other countries, including China,” the Pennsylvania Senator wrote. He asked the two officials for reports on many areas, including user experience and distribution, to what extent China’s government could capture user and transaction data, and what lessons the U.S. government could learn from China’s pilot.
A paper from the Bank for International Settlements, in which the Federal Reserve participated, observed that innovations in digital payments haven’t been waiting for governments.
“Technological innovation has been transforming the markets for retail payments at pace over recent years, with many new payments methods, platforms and interfaces evolving to become faster, cheaper and safer. These new non-financial market players have shown a strong understanding of what users need from their payments products and what conditions are necessary to facilitate adoption. Central banks would need to take into account this evolving context if they choose to launch a CBDC.” [Emphasis added.]
Toomey’s letter was bookended by two major developments, on the U.S. CBDC front.
In late January the Federal Reserve issued a white paper on policy issue basics it needs to consider. (Dig Deeper on Fed CBDC report) Following that, the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology Digital Currency Initiative released a much-awaited joint paper on the first phase of its “Project Hamilton,” a technological blueprint for an American central bank digital currency.]
(Project Hamilton’s name has two sources: Margaret Hamilton, an MIT director who developed flight software for NASA’s Apollo program, and Alexander Hamilton, the first Treasury Secretary, who appears on the $10 bill.)