The (Other) Hustlers and Slow-Rollers Bitcoin Inspired

via Jim Mignano

Remember Libra? Implicitly inspired by Bitcoin, Facebook announced the ill-fated virtual currency in June 2019. Libra was to be a blockchain-based payment system running on digital tokens backed by a basket of currencies. The whole thing was a wake-up call for policymakers: what would it mean for a tech firm with over 2 billion users worldwide to introduce a currency? Quite a lot. Once taking the wait-and-see approach to virtual currencies, policymakers waited no longer and sounded the regulatory alarms. Libra receded to the drawing board, where it remains today (albeit rebranded as Diem).

The story doesn’t end there. In fact, it gets more interesting. Monetary authorities met Libra’s initial volley with more than just regulatory fervor. Many decided to fight token with token, exploring (or accelerating) the development of their own digital currencies. As attention turned to these “Central Bank Digital Currencies” (CBDCs), their potential benefits became more palpable. Not only might CBDCs assuage central banks’ fears of losing control to privately run currencies like Diem; they also teased lower operating expenses, more accessible finance, and expanded public policy toolkits. To top it off, COVID-19 struck in the midst of growing central bank interest in CBDCs. In response to COVID, governments flexed their muscles to degrees not seen in ages while consumers increasingly switched to electronic payments. Both responses would appear to have increased CBDCs’ feasibility and allure.

Which brings us to today. Two years and a global pandemic since Libra’s Diem’s announcement, at least 72 central banks have been hustling CBDC projects. In October 2020, the Bahamas launched Sand Dollar, the world’s first nationwide CBDC. China is piloting a digital yuan with over 2 million residents of six cities. On July 14, the European Central Bank announced the launch of a 24 month “investigation phase of a digital euro project.”

The notable slow-roller? The United States. The Federal Reserve “remains fully engaged [read: “planted”] in CBDC research and policy development.” A Fed report on CBDCs expected to be released this month has been pushed back to September. One can only speculate as to the relaxed pace of inquiry, but several reasons are plausible. The first is that the Fed, sitting atop the world’s most in-demand currency, sees itself in a privileged position. The Fed’s Vice Chair for Supervision Randal K. Quarles says as much when arguing that “stablecoins” such as Diem “might support the role of the dollar in the global economy” if backed by the dollar. Some are concerned that a CBDC could disrupt private banking or leave the U.S. financial system increasingly vulnerable to cyberattack. Still others might be uncertain about public appetite for a policy tool that could scoop up payments data. Perhaps these are all good reasons why Fed Chair Jerome Powell appears to be slow-rolling a decision on CBDCs, even considering leaving it up to Congress to make the call.

So who’s got it right: the hustlers or the slow-rollers? Only time will tell. In any case, one must note the irony that a project inspired by peer-to-peer cryptocurrency has propelled what may turn out to be greater monetary centralization.

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