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Federal Reserve System analysts caution that the emergence of CBDCs and stablecoins in other nations could diminish the U.S. dollar’s position in the global economy. The only viable solution is for the U.S. to issue its own CBDC.
Jean Flemming and Ruth Judson, members of the Federal Reserve System’s Board of Governors, have compiled an analytical report that explores the role of CBDCs in international payment systems and the potential effects of the widespread adoption of stablecoins and foreign central bank digital currencies on the global standing of the U.S. dollar.
The Fed analysts caution that developments in this domain could considerably restrict the dollar’s use as a medium of exchange. Nevertheless, current trends do not pose a threat to the U.S. currency’s function as a store of value.
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To tackle this challenge, Fed representatives advocate for the advancement of the digital dollar initiative and the issuance of CBDCs in the United States. This would allow the U.S. to remain competitive with other nations in the realm of state-backed digital assets. Analysts highlight that over 90% of central banks are exploring CBDCs, though specific countries that the U.S. would compete against are not identified. It is likely that the reference is primarily to China, whose digital yuan (e-CNY) project achieved a transaction volume of 1.8 trillion yuan (~$249.33 billion) by the end of June 2023.
The primary concern of the Fed analysts is the possible erosion of the U.S. dollar’s role in cross-border payments if a local CBDC is not issued or if it is launched with technical deficiencies. In their report, the authors share their insights on design and policy alternatives for the digital dollar’s implementation. They also mention that the issuance of CBDCs is unlikely to directly affect the market for U.S. Treasury bonds and other debt instruments, nor will it impact the stability of the national economy and political framework.
It is important to note that discussions surrounding CBDCs in the U.S. are intensifying. Recently, it was reported that a group of Republicans has introduced a bill to Congress aimed at preventing the Fed from issuing the digital dollar. Additionally, Donald Trump has been vocal against CBDCs during the election campaign, appealing to the sentiments of ordinary U.S. citizens, 84% of whom oppose its implementation.
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