The concept of a digital dollar or central bank digital currency (CBDC) has gained significant attention in recent years, especially within the US Treasury. Officials continue to explore the potential of implementing a CBDC system, taking into consideration various factors, such as national security and privacy. While there are several benefits associated with CBDCs, such as financial inclusion and efficient payment systems, one Treasury official has raised concerns about the possible risks involved.
Graham Steele, a Treasury official, spoke at a payments conference in Austin, Texas, mentioning that the US has not made a firm decision on whether to pursue a CBDC. An interagency working group, however, is in place to assess the potential implications of such a currency. CBDCs essentially aim to improve payment efficiencies and foster financial inclusion. These digital versions of a country’s currency, issued by its central bank, may or may not run on a private blockchain system or distributed ledger.
At the conference, Steele discussed the potential of a retail CBDC; a digital currency directly accessible to individuals and businesses for everyday transactions. A retail CBDC could contribute to a more competitive and innovative payment system, support financial inclusion, and help preserve the face value redemption of the currency. However, Steele also noted that certain design decisions could impact these potential benefits. For example, enabling offline transactions would directly affect the financial inclusion of individuals without access to reliable internet. Furthermore, Steele emphasized the importance of considering the needs of marginalized communities when designing any CBDC.
While retail CBDCs present numerous benefits, they also come with risks. One notable risk that Steele mentioned was the possibility of a “bank run” into CBDCs. If a significant number of people rapidly move their money from private banks to the retail CBDC, this could disrupt private banks’ ability to lend money, creating instability in the financial system.
Critics often express concerns about potential government overreach with regards to digital dollar implementations. Steele acknowledged these concerns by stating that a lack of institutional trust alongside privacy concerns are already among the most cited reasons individuals avoid the banking system.
In conclusion, the development of a digital dollar is still under consideration, with various factors being taken into account. Although a CBDC could provide significant benefits, such as a more competitive and innovative payment system, it is essential to address the potential risks and privacy concerns associated with it. With careful design and implementation, a digital dollar could potentially revolutionize the financial landscape one day.
Source: Blockworks
