Debate Sharpens in US Over CBDC

The debate over central bank digital currencies sharpened a bit this past week in the marbled halls of the U.S. Congress.

At a Senate Banking subcommittee hearing on Wednesday (June 9), as pionline.com noted, U.S. Sen. Elizabeth  Warren, D-Massachusetts, said that in general,  cryptocurrencies “are a lousy way to buy and sell things. Unlike the dollar, their value fluctuates wildly depending on the whims of speculative day traders.”

But a CBDC, she said, stands in contrast to that volatility and added that “Legitimate digital public money could help drive out bogus digital private money, it can help improve financial inclusion, efficiency and the safety of our financial system — if that digital public money is well-designed and efficiently executed, which are two very big ‘if’s,’ ” said Warren. But as the site noted, Sen. Patrick Toomey, R-Pennsylvania, said that the private sector should develop its own digital currencies.

“Private digital currencies have the potential to increase access to financial services for all Americans while increasing individual privacy,” Toomey said. And among the panelists, Neha Narula, director of Massachusetts Institute of Technology’s Digital Currency Initiative, said that “digital currency offers an opportunity for a ground-up redesign of our payment systems. If built in the right way, a digital dollar might empower users and create a platform for innovation in payments.”

As has been reported, the Federal Reserve said its Boston bank is working with MIT to look into the potentiality of issuing digital currency.  Jim Cunha, senior vice president, secure payments and FinTech at the Federal Reserve Bank of Boston, told PYMNTS in an interview that the joint efforts between the Fed and MIT are concentrated on exploring the infrastructure that would support a CBDC — and, at the same time, look into different use cases.

Bank Of England

Separately, the Bank of England has stated in a discussion paper that a significant percentage of consumer deposits may, in fact, embrace digital currencies.

As reported by Bloomberg, the bank is studying what would happen with the issuance of a digital version of the pound (thus, a stablecoin). In one scenario, that digital currency could be issued directly to consumers rather than directly to banks.

As noted by the newswire, Sir Jon Cunliffe, who serves as deputy governor of the Bank of England, told Sky News that “deposits would flow out of the banking system,” Cunliffe said. “The banking system would have to attract funds, probably from the wholesale markets, because they would lose retail deposits. It might put the cost of credit up by a fifth of a percent.”  The issuance of such a stablecoin is still years away, he stated.

And in China, as reported by LedgerInsights.com, late last week, Mu Changchun, director of the Digital Currency Research Institute at the People’s Bank of China, shed some light on how a digital yuan would be issued and how it would work.  In one example, lower transaction volumes, at less than 5,000 yuan, could be sent to a digital yuan wallet with just a mobile phone number. But, he said that, as higher volumes mark those transactions, users would have to link to bank accounts and verify their identities.  The site also noted that the digital wallets would be able to open “sub” wallets, which would let users reduce the flow of data to larger tech firms.  The sub wallets would be able to be used at individual merchants, making it harder to aggregate (and track) spending data.

Read More On CBDC:

Banks Warn Digital Euro Could Impede Private-Sector Payments

European Central Bank Looks to Test Digital Euro in 2027

European Central Bank Aims to Launch Digital Euro in 2029

China Has Its Big Tech Firms Put Stablecoin Plans on Hold