While many countries worldwide are exploring the potential of Central Bank Digital Currency (CBDC), China continues to expand its e-CNY in the market. China introduced its CBDC to the world at the Olympic Games in February 2022. For its part, the US Federal Reserve is conducting research and strategic planning regarding the potential implementation of CBDCs, spurred on by Biden’s executive order. Despite these efforts, America has yet to make a concrete commitment to adopting a digital dollar.
In the US, the CBDC would be a third form of the US Dollar after paper and coins. CBDCs are considered fiat currencies of a particular nation (or region) that are issued by – and regulated by – the overarching monetary authority of that country. Each CBDC is backed by the government that issued it and is part of the base money supply. The US Constitution determines what Congress can and cannot do to create and weigh money, and the Digital Dollar would be under that legal definition.
I spoke with Lisa Pollina, Board Member, Atlantic Council of the United States, about the hurdles in CBDC adoption, weighing the pros and cons. We also touched on China’s CBDC prevalence versus US interest in cryptocurrencies.
FAQs
A digital dollar would also hinder illegal activities that rely on anonymous cash transactions, such as drug dealing, money laundering and terrorism financing. It would bring “off the books” economic activity out of the shadows and into the formal economy, increasing tax revenues.
What are the pros and cons of US digital currency? ›
Pollina even lays out the advantages of a digital dollar, such as unbanked access, fraud resistance and quicker payments. There are many ongoing privacy and security risks, cyber threats and surveillance. The U.S. dollar may have to get up from its seat as the world's reserve currency as CBDCs step in.
Is the US looking at digital currency? ›
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.
How would a digital dollar be different? ›
A digital dollar would likely be implemented through a single unified system for tracking payments and deposits. Individuals and enterprises could make instant payments in dollars electronically without relying on cash or traditional bank accounts.
Will digital currency replace cash? ›
Central bank digital currencies (CBDC) can replace physical money, especially in economies where cash deployment is costly, Managing Director of the International Monetary Fund Kristalina Georgieva said during a Wednesday speech.
What are the downsides of digital dollar? ›
Some positive attributes, such as lower fees and less friction in the system, are commonly cited as reasons to promote this project. However, reduced privacy and greater government oversight of one's financial life are common downsides many consider.
What is the problem with digital currency? ›
Cryptocurrencies have also given rise to a new set of challenges for governments to contend with, including concerns over criminal activity, environmental harms, and consumer protection.
What are the threats of digital currency? ›
If you are interested in using or buying virtual currencies, you should be aware of the associated risks: Hackers. Virtual currencies are targets for highly sophisticated hackers, who have been able to breach advanced security systems. Fewer protections.
Is digital currency good or bad? ›
Some of the advantages of digital currencies are that they enable seamless transfer of value and can make transaction costs cheaper. Some of the disadvantages of digital currencies are that they can volatile to trade and are susceptible to hacks.
How to protect your money from the digital dollar? ›
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.
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.
What is the digital currency to replace the dollar? ›
In acronym-addicted Washington, D.C., the digital dollar is referred to as a CBDC, or a central bank digital currency. It would be a virtual version of the physical cash you carry in your wallet, resembling a government-issued version of cryptocurrencies like Bitcoin.
Is the digital dollar a real threat? ›
Although a CBDC would not offer any unique benefits to Americans compared with existing technologies, it would pose serious risks. A CBDC could spell doom for what little financial privacy protections Americans still have because it would give the federal government complete visibility into every financial transaction.
Why do we need a digital dollar? ›
Digital money makes it easier for central banks to implement monetary policy because they don't need to collect and store physical money or assets to influence inflation or create financial system stability.
Why will cash never go away in the US? ›
There are many reasons experts list in arguing that cash must remain a viable payment option: Going cashless excludes the millions of unbanked and underbanked people in America, most of whom are people of color; cash is the best way to pay while maintaining a modicum of privacy; cash is integral to many cultural ...
How to protect yourself from the digital dollar? ›
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.
What will the digital dollar do? ›
Digital currency are digital formats of currencies that do not exist in physical form. They can lower transaction processing costs and enable seamless transfer across borders. What Is Electronic Money or eMoney?
What will replace the US dollar? ›
But that begs a critical question: What would replace the dollar? Some say it will be the euro; others, perhaps the Japanese yen or China's renminbi. And some call for a new world reserve currency, possibly based on the IMF's Special Drawing Right or SDR, a reserve asset.
