Crypto Crashed, CBDC, Digital Dollars Pink

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A surprising digital dollar asset had a great 2022, and it wasn’t a cryptocurrency.

As last year saw the value of the crypto market shrink to $1.4 trillion from its peak of $3 trillion in 2021, governments around the world have increasingly experimented with some form different from digital currency, a national legal tender.

Perhaps fearing that the future of money is beyond them, central banks in 114 countries last year undertook a variety of investigative programs to research, and even act on, the feasibility of issuing sovereign currencies. virtual backed by a federal banking system. .

As of December 2022, all G7 economies have moved into the development stage of a central bank digital currency (CBDC).

Money is no longer paper

A CBDC is an electronic currency, rather than physical, backed and issued by a sovereign nation.

Compared to cryptocurrency tokens, which are stored-value digital assets, CBDCs act as true legal tender.

As reported by PYMNTS, a recent multi-year project by the Federal Reserve Bank of Boston and the Digital Currency Initiative at the Massachusetts Institute of Technology (MIT) proved the technical feasibility of a US CBDC.

Further project results will be published in early 2023.

Separately, the New York Federal Reserve is leading a landmark digital currency project with a consortium of leading commercial financial institutions, including BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, Truist, US Bank, TD Bank and Wells. Fargo.

We strongly agree with the Federal Reserve’s view that, provided the creation of a CBDC is deemed warranted, an intermediate (two-tier) distribution model is preferable for the purposes of the CBDC. American economy, because it preserves the role of financial intermediaries and payment services. providers, while using existing resources, Mastercard, a participant in the New York project, said in a public statement.

Holding and transferring money digitally is nothing new for consumers or businesses, both of which have relied on bank accounts, online transactions and payment apps for years.

However, the forms of currency used in these digital transactions are usually the liabilities of commercial banks and other private entities.

A digital dollar issued by a CBDC would instead be a liability of the Federal Reserve, just like paper money.

The advantages offered by a CBDC include lightning-fast settlement speed and much larger transaction volume processing compared to most options available today, including bitcoin and ethereum blockchain settlements.

Boston Fed research established a technical baseline for CBDC transactions between 170,000 and 1.7 million transactions per second. The project was able to complete almost all transactions (99%) in less than five seconds.

Trial watchers said this highly efficient real-time settlement speed could revolutionize both money and payments.

Personal freedom and economic freedom

In March 2022, President Joe Biden signed an executive order that called for American leadership in exploring the possibilities of the CBDC.

Despite this show of presidential support, the Federal Reserve’s CBDC initiatives are running into controversy on Capitol Hill.

While bitcoin, the best-known and most widespread cryptocurrency, is a politically neutral monetary system whose decentralized and peer-to-peer nature prohibits identity tracking and does not collect any personal information, CBDCs, in on the other hand, are seen by some as representing the opposite of crypto freedoms due to their implicit government ties.

This has led to growing fears among some observers that the Federal Reserve could use CBDCs to collect personal information about citizens, and in turn leverage these digital dollar transactions as a surveillance tool to track certain individuals or underwriters. groups of the population, even going so far as to freeze accounts or prohibit certain purchases.

As a result of these concerns, Minnesota Congressman Tom Emmer, the ranking Republican on the House Financial Services Subcommittee on Oversight and Investigations, introduced a bill prohibiting the Federal Reserve from issue a CBDC directly to individuals.

The bill has been read twice and referred to the Banking, Housing and Urban Affairs Committee, where it awaits further action.

Emmer did not respond to a request for comment from PYMNTS.

And after?

At a time when a Central American cocoa farmer can communicate digitally in real time with wholesale and retail customers around the world, it might seem archaic to continue to move money through systems and infrastructure designed to the era of paper money.

Eleven countries have already launched their own digital currencies into circulation, including the Bahamas, Jamaica and Nigeria.

US federal government feasibility projects, both completed and ongoing, have indicated, using plain language, that they are independent of policy and are intended only to explore the potential benefits and risks of CBDCS, not to influence legislation.

In a comment to PYMNTS earlier this month, a Boston Fed spokesperson pointed out that their research work on CBDCs was purely academic.

The Federal Reserve has made no decision on whether to pursue, let alone implement, a CBDC and it remains to be seen if this stoic stance will change in 2023.

For all PYMNTS cryptocurrency coverage, subscribe to the Daily Crypto Newsletter.

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