White House digital asset report lays the groundwork for CBDC

The Biden administration might not be saying yes to a digital dollar, but it certainly isn't saying no to one, either.

A Treasury Department report published last week on the future of money and payments notes there is a "natural use case" for a central bank digital currency, directly contradicting a key argument that many skeptics — including current and former Federal Reserve Board members — have articulated for not developing a central bank digital currency. 

Meanwhile, the White House said a CBDC could "offer significant benefits" to the U.S. financial system, including bolstering its status as a global leader and supporting innovation. The assessment was part of a wide ranging report on digital assets following up on an executive order issued in March.

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Taken together, the reports add to the mounting trove of government-backed and academic research supporting the creation of U.S. CBDC in principle, if not in practice. This is a notable departure from the Trump administration stance that dismissed the need for a digital dollar out of hand.

Rep. Jim Himes, D-Conn., member of the House Financial Services Committee and author of a white paper on the need for a U.S. CBDC, applauded the reports as another step in the right direction for what he sees as a matter of not only commercial significance but also national security.

"The White House report is a good contribution to an effort that is picking up notable momentum in Washington," Himes told American Banker. "With dozens of other nations considering a digital currency, it is essential that the United States not be left behind in an important area of potential innovation. We cannot be caught flat-footed in a way that would risk the dollars' status as the global reserve currency." 

The White House report also acknowledged the potential for "unintended consequences" for a CBDC and the need for further research. 

It noted that a digital dollar would have to protect customer privacy and shield them from bad actors. It raised concerns about cybersecurity threats and market runs during periods of distress. It also pointed to money laundering and accessibility as key factors to consider.

But rather than treating issues such as privacy concerns and run risk as roadblocks, the report provides the Federal Reserve with a checklist of objectives to satisfy on its way to implementation. For some issues — such as curbing illicit finance and improving financial services access to the underbanked — the report notes that a digital dollar could improve upon the existing system.

But the administration reiterated that it has not taken a stance on whether or not the Fed should ultimately issue a CBDC. 

A White House spokesperson said the president did not want to interfere with the Fed's research and experimentation with CBDC technology, but it viewed it as a high priority. 

"These reports are central to that work," the spokesperson said. "They assess many possible design choices for a CBDC and lay out their pros and cons. If the United States finds a CBDC to advance the national interest, this early work is important for successfully introducing a CBDC. As stated in President Biden's executive order from March, which authorized these reports, the U.S. government places the 'highest urgency' on these efforts."

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The White House report also noted that a digital dollar should not mean the end of physical currency and emphasized the importance of the private sector in not only being able to connect to a potential CBDC system, but also playing a role in building it out. 

Nods to fostering innovation and partnering with the private sector brought little solace to banking groups, which have long been skeptical about the benefits of a CBDC and its potential to disintermediate them from the financial system.

After the release of reports from the White House, Treasury and the Justice Department, the Independent Community Bankers of America reiterated its opposition to a CBDC, noting that it would rather see the Fed focus on its long-awaited instant payments system, which is set to debut next summer.

"As ICBA told the Treasury and Commerce departments in recent comment letters on crypto oversight, policymakers should prioritize protecting national security amid catastrophic developments in the crypto markets while collaborating on a comprehensive regulatory framework that utilizes more effective alternatives to a U.S. CBDC — including the FedNow instant payments service," ICBA President and CEO Rebeca Romero Rainey said in a statement.

The Bank Policy Institute took a more measured stance on the reports. To ensure a CBDC does not exacerbate financial exclusion, the group urged to make the system available for use offline and urged the government to expand internet and broadband access in tandem. 

The institute also urged the Fed not to sacrifice other methods of payment if it does roll out a CBDC.

"The United States should also seek to maximize user choice and take steps to preserve the ability of consumers to use cash," the organization said in a statement. "Finally, use of a new payment system, including a potential U.S. CBDC, should not be mandated."