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In the United States, policymakers have studied and debated the creation of a central bank digital currency (CBDC) known as the “digital dollar” without reaching a decisive conclusion.

CBDC Overview

CBDCs are digital versions of traditional fiat currencies, backed by governments to promote economic inclusion and improve financial services through tokenized payment efficiency. They aim to enhance monetary policy and accountability within global payment systems amidst the decline of cash usage. CBDCs can also help mitigate risks associated with unregulated private payment instruments.

There are two types of CBDCs: retail CBDCs, which are used by the public, and wholesale CBDCs, designed for interbank and securities transactions.

Vivek Raman, CEO of Etherealize.io, states:

> “We don’t believe a CBDC will happen in the US under the new administration. A CBDC contradicts decentralization and freedom principles; having a marketplace of stablecoins is better.”

The US CBDC Ban

On January 16, Scott Bessent, Treasury Secretary nominee, testified against the introduction of a CBDC, citing privacy and economic concerns. Consequently, President Trump signed an executive order on January 23 prohibiting CBDC establishment in the US. Rhett Shipp, CEO of Avant, remarked:

> “CBDC could harm the US by reducing USD utility and increasing censorability; stablecoins are the better route.”

Global CBDC Development

The Atlantic Council’s tracker follows CBDC developments in 134 countries, which account for 98% of global GDP. Currently, 66 countries are exploring CBDCs, with China in the lead. Only Nigeria, Jamaica, and the Bahamas have issued them.

Countries collaborating on CBDC legislation face cybersecurity challenges and privacy protection issues, as noted by the IMF CBDC Virtual Handbook.

Leading CBDC: e-CNY

China’s e-CNY has taken the lead globally, piloting the program since 2019 with 260 million users. As of June 2024, it facilitated transactions totaling 7 trillion yuan (approximately $982 billion). China’s continuous efforts aim to broaden e-CNY use cases, now covering various payments from public services to traditional gifting methods.

Central banks across Asia and the Pacific are also piloting CBDCs, including countries like India and Singapore. Yifan He, founder of Red Date Technology, predicts Trump’s ban will impact US retail CBDC projects for the next four years, stating:

> “I don’t think any country can develop a real retail CBDC in the next 10 years.”

Red Date Technology is involved in two major global CBDC pilot programs, enhancing interoperability through its Universal Digital Payments Network.

EU’s CBDC Initiative

Since 2020, the European Central Bank has explored CBDCs, responding to the US CBDC ban by expanding its wholesale CBDC payment system to enhance integrated financial infrastructure. Their initiative involves two phases: developing a wholesale CBDC platform followed by integration with existing systems for seamless tokenized transactions.

Conclusion

The Innovation Hub at the Bank for International Settlements is intensifying CBDC research in response to COVID-19 disruption. William Quigley, a blockchain investor, remarks:

> “Countries will adopt CBDCs at their own pace. The reality is that privately issued digital assets will challenge traditional banks as more countries implement CBDCs.”

Out of the G20 nations, 19 are advancing CBDC programs, indicating a substantial global shift towards digital currency adoption. As pointed out by coin dealer Ozgur Honc, there remains a market for traditional paper currency.

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