But is it actually happening? Is the U.S. government going to launch a cryptocurrency?
What Is a CBDC?
Central Bank Digital Currencies are cryptocurrencies issued by governments. While the cryptocurrencies we know today are typically associated with financial freedom, anonymity, and other ideals that seem at odd with central banks, a CBDC could use the technology behind those cryptocurrencies in more institutional ways.
Some of those, like issuing payments, providing access to financial services, providing resources, and other uses, are potentially beneficial. However, a CBDC could also potentially increase less favorable abilities. Those could include surveillance, control over individuals’ finances, and other nightmare scenarios.
Does the U.S. Have a CBDC?
The U.S. does not currently have a CBDC. It might never have a CBDC. But, it’s exploring the option.
America’s CBDC Initiative
While a U.S. CBDC has been a topic of speculation in crypto circles for years, the real path began with President Biden’s March 2022 Executive Order. The order also encouraged U.S. involvement in “payment innovations and digital assets,” including exploring consumer protections. It also set the gears in motion for a potential CBDC.
The order currently calls for reports on what a potential CBDC might look like and should look like. However, those reports had deadlines ranging from a few months to a year away.
The Current Status of America’s CBDC Research
As of this writing, the first reports are in. While they stop short of supporting (or opposing) a CBDC, the reports outline some considerations and available options that an eventual developer could pursue if they choose to pursue it.
The reports also point out that, as complicated as a CBDC would be to implement, that’s just one part of the problem. A CBDC could impact most aspects of economic life. This is particularly true for the government, as the reports also say that any potential CBDC should be optional for Americans.
“A ‘CBDC system’ includes the CBDC itself, the public sector and private sector components that are built to interact with it, and the laws and regulations that apply to each of those elements,” a technical evaluation by the Office of Science and Technology Policy stated.
The same report also stated that, in addition to research and development that hasn’t started yet, the CBDC would require extensive pre-testing before it even entered a pilot phase. The report declined to suggest a timeline or budget for such an initiative, given how many key decisions still need to be made.
Why Would the U.S. Want a CBDC?
Issuing a CBDC could enable the United States to offer Americans more affordable and convenient financial services. For example, the OSTP technical evaluation mentioned the idea that a CBDC could be used to issue social safety net allowances like the Supplemental Nutrition Assistance Program.
Improved access may also help “unbanked” Americans. This includes those who live in rural areas and may not have easy access to a banking institution but may also include Americans that don’t trust banks. Making Americans who don’t trust banks trust a CBDC is its own obstacle, as is a CBDC that would work in low connectivity areas or even offline.
The Executive Order also emphasizes a role in a CBDC spurring economic opportunity by streamlining domestic and cross-border payments. However, this poses its own technical challenge, as it would require people in other countries to hold and use a digital dollar or interoperability between the digital dollar and other as yet non-existent CBDCs.
“The CBDC system should, where appropriate and consistent with other policy priorities, facilitate transactions with other currencies and systems, such as physical cash, commercial bank deposits, CBDCs issued by other monetary authorities, and other financial systems,” says a list of policy objectives also by OSTP [PDF].
U.S. Government CBDC Fears and Rumors
Crypto commentators have been talking about a CBDC for years, and they have some concerns. For example, could a CBDC allow currency manipulation? Probably not more easily than the current financial system.
Another concern is surveillance. This potential more real concern is addressed in the extant reports. For example, a CBDC would allow more observation than cash payments. However, recommendations so far are that this line should not be overstepped.
According to the OSTP, “The CBDC system should allow for the collection of information necessary to fulfill (anti-money laundering and counter-terrorism financing), but not more.”
Another prominent concern is that a CBDC would allow the government to freeze an individual’s assets if they expressed political views at odds with the administration. This could be prevented by anonymizing accounts or at least certain transactions. Again, per OSTP, “The CBDC system should also be protected from abuse during periods of high political volatility or deviation from democratic values.”
Both of these concerns would also be much more real if the CBDC were the only circulating form of currency. Unfortunately, this is also not the direction things seem to be going in. All documents suggest and even presuppose that a CBDC adds situational utility to current (and even future) forms of money rather than replace them. Also, let’s not forget that if the government wants to freeze your money, it doesn’t need a centrally controlled cryptocurrency to do so.
“Use of the CBDC System should not be mandated. Offline capability should be incorporated, and the role of cash should be proposed,” the OSTP proposes. In fact, language in the current reports doesn’t necessarily rule out interoperability with existing cryptocurrencies, similar to crypto services offered by PayPal.
A CBDC’s Complicated Future
Even after reading through hundreds of pages of reports, to say nothing of those reports that are still expected in the months to come, there are a lot of unanswered questions about what a U.S. CBDC might look like, when it might be ready, and even whether it will happen at all.
After all, not even the Executive Order that started all of this research proposed a CBDC at all. Is the U.S. CBDC something that should be on your radar? Probably. Is it something that you need to be losing sleep over? Probably not. At least, not yet.
