CBDC: Why it can take years to develop a digital dollar

US Treasury Secretary Janet Yellen has provided a little more insight into how regulation of digital assets such as crypto and central bank digital currencies (CBDCs) might develop.

Digital assets have exploded, reaching a market cap of $3 trillion last November, from $14 billion just five years earlier, she said.

Digital currencies are a hot topic for the US government: Last month, President Joe Biden saw an executive order over digital assets. Biden wants the US to lead the way in an area where China is much more advanced with its digital Yuan projects.

“As a central bank obligation, a CBDC could become a form of trusted money that is similar to physical money, but potentially offers some of the expected benefits of digital assets,” Yellen said.

A CBDC would normally be issued by a country’s central bank. The US Federal Reserve is examining the pros and cons of creating a . Biden’s order urges the Fed to speed up its investigation and instructs the Treasury Department to prepare a report on the “future of money.”

The Fed’s white paper acknowledged concerns that non-US CBDCs could threaten the US dollar’s dominance in international trade if a particular CBDC became popular. The central banks of Australia, Malaysia, Singapore, South Africa and the Bank for International Settlements (BIS) have weighed cross-border payments from separate CBDC platforms.

Meanwhile, a bill in the House of Representatives in March calls for Treasury to roll out e-cash as an interim supplement to an actual Federal Reserve CBDC. It aims to accelerate US digital asset plans, but optimistically hopes to create a digital payment system that is as private as cash – something a central bank-issued CBDC cannot promise.

Yellen said the Treasury’s report on the future of money will analyze “possible design choices regarding a potential CBDC and implications for payment systems, economic growth, financial stability, financial inclusion and national security.”

And don’t expect a quick decision. Yellan noted, “I don’t know yet what conclusions we’ll draw, but we need to be clear that issuing a CBDC would likely pose a major design and engineering challenge that would take years of development, not months.”

She also emphasized that innovation does not always bring equal benefits to people.

“Innovation that improves our lives while managing risk appropriately should be embraced. But we also need to consider that ‘financial innovation’ of the past has all too often failed to deliver benefits for working families, and at times has reduced inequalities. has worsened, creating illicit financial risk, and increased systemic financial risk,” she said.

“Our regulatory frameworks need to be designed to support responsible innovation while managing risks – especially those that can disrupt the financial system and the economy,” Yellen said.

“As banks and other traditional financial firms become more involved in digital asset markets, regulatory frameworks will need to appropriately reflect the risks of these new activities. And new types of intermediaries, such as digital asset exchanges and other digital intermediaries, will need to be subject to appropriate forms of supervision.”

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