As I discussed in a recent post Australia is starting to look at a Central Bank Digital Currency programme, with a focus on retail customers. The design parameters and business case are yet to emerge, and I hope there will be considerable consultation around privacy, free choice and the continued used of cash. Around the work, work on CBDC’s are progressing.
China’s e-CNY, or digital yuan, project is essentially ready to go, with the country going slow to ensure mass adoption is effectively in place before the launch, on which it has placed a lot of prestige.
The European Central Bank (ECB) has been an enthusiastic supporter of a digital euro, calling it “the holy grail” of cross-border payments. “To ensure financial stability in this digital age, it is crucial that we all still have easy access to central bank money, which is the foundation of our currency,” ECB President Christine Lagarde, said in July. “The digital euro can achieve that.” The ECB’s crypto front man Fabio Panetta said in May that a digital euro could launch within four years.
India and Russia are planning CBDC launches sooner than that, with India saying a CBDC could launch as soon as 2023. Almost all the G20 members are working on a CBDC to some degree. Sweden, South Korea, Thailand, Malaysia, Saudi Arabia and Brazil are all fairly advanced, while Africa’s largest country, Nigeria, launched its eNaira CBDC almost a year ago. Both South Africa and Ghana have live pilots up and running.
And more than a few governments have been clear that challenging the dollar’s hegemony is a goal, with the ECB’s Lagarde saying a “digital euro would also help to avoid market dominance.” So you could argue that Central bank digital currencies (CBDCs) have reached a critical mass, and enough major economies are challenging the greenback’s status as the world’s reserve currency (and all the power that comes with it) to shift the debate to matters of national prestige. Which then takes us to the US, where things are also getting started.
To that end, I want to discuss remarks made by Fed Governor Michelle Bowman where she suggested that she believes the FedNow real-time payments system will make a digital dollar unnecessary. But, perhaps the arguments that the U.S. will need a CBDC to defend the dollar’s place as the world’s reserve currency are winning, for reasons that have nothing to do with an actual need for a digital dollar or real-time payments. The financial superpower can’t afford to be left behind.
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