In the last several years, as cryptocurrencies have attracted growing attention, governments around the world have begun to consider the issuance of a central bank digital currency. A CBDC is a digital form of central bank fiat currency, in our case: a digital dollar. Like a physical dollar, it would be a liability of the Federal Reserve.
As a member of Congress with a prior career in the banking sector, I have been tracking cryptocurrencies and the development of a CBDC for some time. With dozens of other nations moving forward in development, it is important that the United States not be left behind.
I believe that the potential benefits of developing a CBDC meaningfully outweigh the risks. Perhaps more important: Given the rapid rate at which this technology is advancing, the risks of not developing a CBDC meaningfully outweigh the risks of developing one.
The concept of a CBDC is not new. Many consumers already use money in digital form via products like Venmo and Zelle or through debit and credit cards. These electronic currencies are liabilities of a commercial entity, like a bank or credit union, rather than the Fed. Similarly, privately issued stablecoins, which are often positioned as alternatives to traditional fiat currency, are also subject to the credit and operational risk of their sponsoring entity.
Recently, the House Financial Services Committee examined the benefits and risks of CBDCs. From that, it is clear that a CBDC might have several valuable use cases.
First, a CBDC could be an important tool in financial equity and inclusion. A portion of the unbanked and underbanked demographics in the U.S., particularly some immigrant populations, lack confidence in banks and the formal financial service sector, or they are put off by complex and sometimes unpredictable fee arrangements. A CBDC could be a platform for the creation of culturally appropriate businesses for payment, credit scoring and money transmittal.
It might also offer inexpensive or cost-free deposits and withdrawals, and be accessible in areas that lack traditional brick-and-mortar banking services.
Second, the U.S. dollar has long been pre-eminent in global finance. Were the U.S. to lag in the development of a CBDC behind alternative reserve currencies such as euros or yuan, pressure might be put on the dollar's premier position.
Today, over 100 of the world's central banks are considering the implementation of a CBDC. Fifty countries are in an advanced stage of exploration, meaning they have moved forward on a pilot program, are testing architecture designs or have executed a soft launch.
Sixteen of the G-20 countries are in the development or pilot phase, with only the U.S., Mexico and the U.K. in the research phase.
The U.S. benefits substantially from the status of the U.S. dollar as a global reserve currency. Others around the world understand the U.S. dollar to be a uniquely stable store of value. I fear that a foreign digital currency, developed and implemented far ahead of our own, could lead to the U.S.'s displacement. In her testimony before the House Financial Services Committee, Fed Vice Chair Lael Brainard noted that a "U.S. CBDC may be one potential way to ensure that people around the world who use the dollar can continue to rely on the strength and safety of the U.S. currency."
Third, the pre-eminence of the dollar is important to our national security and to global stability. In the last year, Putin's brutal invasion of Ukraine has highlighted the power of financial repercussions as a strategic tool. Russia's illegal action was met with an onslaught of sanctions from over 30 countries aimed at weakening its economy and war-making capability. The European Union and NATO moved to cut off seven Russian banks from SWIFT. With no way to transact with the rest of the world, Russian banks lost billions.
A country with a well-established CBDC could insulate itself from these types of consequences. China, for instance, is building a digital yuan that will allow it to transact without touching the current global monetary infrastructure. Whether we face the yuan or another competitor as a future digital global reserve currency of choice, or a rising power untethered to the guardrails of an international payment system, this is a race we must not lose.
Finally, a CBDC backbone upon which private industry could innovate will certainly create possibilities we can't even imagine today. That is the iron rule of innovation. Thirty years ago, the internet was an odd novelty; few had any idea how it would transform people's lives. Fifty years ago, the personal computer was a geeky novelty useful for nothing but a few simple games. Today, those technologies are as fundamental to our society as electricity and running water.
To be sure, a CBDC would need to be thoughtfully constructed. It should not be designed to supplant stablecoins any more than the physical dollar supplants electronic payment systems. It should simply be another option for people who value the full faith and credit of the U.S., a population that has likely grown as cryptocurrencies lost roughly $2 trillion in market value. A CBDC should also not erode or destabilize the depository base of traditional banks, particularly in times of financial volatility.
It is time to further our nation's tradition of leading in innovation by moving forward with our own CBDC, and I am committed to working with my colleagues across the government to make that vision a reality.
