Banks, investors need to plan as Fed’s digital dollar pilot launches (2024)

FAQs

Which banks are doing the digital dollar pilot program? ›

Just a few months after the Biden executive order, the New York Federal Reserve launched a 12-week program using simulated data to test a so-called digital dollar. Supporters of CBDCs say they can help make banking services cheaper, easier, faster and more accessible for all Americans.

U.S. President Joe Biden ordered officials to look into a digital dollar in 2022 but it has become a divisive political issue with Biden's Republican rival in this year's U.S. election race, Donald Trump, vowing not to allow it.

The broader banking system would not be immune from the impact of a CBDC. At a minimum, we see a digital dollar raising funding costs for banks, as zero-interest depositors would have no need to stay in the cumbersome commercial banking system when the Fed offered an instant and free alternative.

Central bank digital currencies (CBDCs) are coming, but a digital dollar is unlikely in the near term, Bank of America (BAC) said in a report on Monday.

Will a U.S. CBDC replace cash or paper currency? The Federal Reserve is committed to ensuring the continued safety and availability of cash and is considering a CBDC as a means to expand safe payment options, not to reduce or replace them.

Demand for cash has dropped by more than 50 percent over the past decade as a growing number of people rely on debit cards or a mobile phone application, Swish, which enables real-time payments between individuals. More than half of all bank branches no longer handle cash.

The concern is that financial privacy will be lost with a digital dollar. The government would be able to watch how people spend their money, close their bank accounts, or even just take the money. In other words, the worry is that a digital dollar would be one more way for the government to control us and our money.

If it's been a long time since you pulled out actual dollars and coins to pay for something — here's a conversation for you. It might seem like cash is slowly becoming obsolete. But, Brett Scott says it's a false narrative that we're all pining for a cashless society.

While users benefit from independence, using digital currencies exposes them to unregulated illegal activity because they exist outside established financial rules. Law enforcement is increasingly concerned about people getting more access to digital currencies.

Is the digital dollar a real threat? ›

While a CBDC does not offer any unique benefit to the American people, it does pose serious risks to financial privacy, freedom, markets, and cybersecurity. A CBDC is a digital national currency that is a liability of the central bank.

ICBA has serious concerns regarding threats posed by cryptocurrency to privacy, consumer protections, and financial stability resulting from increases in money laundering, terrorist financing, and fraudulent activity.

The US is moving toward cashless payments, with a substantial increase in the use of mobile wallet apps and contactless cards. A report from the Federal Reserve Bank of San Francisco found that payments made using cash accounted for just 18% of all US payments in 2022.

Use strong passwords, keep your antivirus software up-to-date, and avoid clicking on suspicious links or downloading unknown software. Also, protect yourself by using two-factor authentication when you login to data-sensitive sites. CBDC is a digital currency, so you'll need to make sure your digital assets are secure.

Digital money is any means of payment that exists in a purely electronic form. Digital money is not physically tangible, like a dollar bill or a coin. It is accounted for and transferred using online systems.

Many large banks now offer “buy now, pay later” services. Later this year, a consortium of banks including Bank of America and JPMorgan Chase plan to launch their own digital wallet, called Paze, to compete with Apple Pay and Google Pay in the same way that Zelle competes with PayPal, Venmo, and Square's Cash App.

The Digital Dollar Project said its initial participants in the program are Digital Asset Holdings, Emtech, Knox Networks and Ripple. Digital Asset Holdings builds distributed ledger products for banks and other financial institutions and names Citi, J.P. Morgan, Nasdaq and Deloitte among its clients.

Reserve Bank of India

The sources added that nine banks participating in this pilot were part of the wholesale pilot of government securities, which was launched on November 1, 2022, to settle secondary market transactions in government securities.

Citigroup, HSBC, and PNC will also be involved in the effort to create a digital version of U.S. currency.