Cryptocurrency

Central Bank Digital Currencies Could Soon Be Reality in the U.S.

As the NY Fed launches a 12-week pilot program with some of the biggest banks in TradFi.

Cryptocurrency

Central Bank Digital Currencies Could Soon Be Reality in the U.S.

As the NY Fed launches a 12-week pilot program with some of the biggest banks in TradFi.

Central Bank Digital Currencies, or CBDC for short, have become an item of major interest for countries around the globe — with over nine countries already launching programs.

The digital currency system was also publicly shown to be of interest to the U.S. in early July, following President Joe Biden’s executive order on digital assets in March. In the latest exploration of these systems, the NY Fed is launching a 12-week pilot program that involves some of the biggest banks in TradFi, including names like BNY Mellon, Citi, U.S. Bank, and Wells Fargo.

While at first glance the proposed digital currency system might appear to have some benefits, many in the crypto and broader Web3 space feel the cons far outweigh the pros.

The Good, the Bad, and the Ugly

The Good

Pathing the path for CBDCs in early August, Governor Michelle Bowman stated that her proposed FedNow program “will allow depository institutions and their service providers to offer value-added services to their customers, ultimately enhancing competition in the market for payment services.”

She added that “FedNow will help transform the way payments are made through new services that allow consumers and businesses to make payments conveniently, in real-time, on any day, and with immediate availability of funds for receivers. Our assessment of these benefits has not changed even as we consider whether a CBDC might fit into the future U.S. money and payments landscape.”

Simply put, the only selling point for CBDCs and systems like it is currently “convenience,” something many in the crypto space are seeing right through.

The Bad

In July, Adam Back, the CEO of blockchain service provider Blockstream, tweeted that he believes CBDCs are systems of control that are “worse than bank accounts, certainly worse than paper cash, worse than stablecoins, and much worse than Bitcoin.”

The sentiment was shared in a supportive retweet of an industry colleague, Samson Mow, the CEO of 3JAN, who provided various examples of the shortcomings of a CBDC.

Mow said that “if I freeze your money, you can no longer do anything. It’s really important that we go back to apolitical money. The best way to move forward is to just adopt Bitcoin as money like countries like El Salvador are doing,” he went on to explain that such systems would be hard for homeless people to be integrated into and that the sacrifice of privacy would be detrimental.

The Ugly

Some paint an even darker picture of what these tokens might mean, like early Bitcoin adopter Kyle Chassé, who in a previous interview with Hypemoon said, “it’s my opinion that western countries, particularly America, will likely use CBDCs as an excuse to eliminate debt from their own balance sheet and reset monetary policy.”

He added that “when it’s ready we’ll finally see them stop kicking the can down the road and we’ll see the economy collapse,” as a way to enable a massive buy-in event of the U.S.-based CBDC.

TradFi Pilot Program

Having faced increased regulatory scrutiny due to asset implosions like LUNA and other bad actors, accepting and aiding in the development of CBDCs may be a gateway for TradFi institutions to maintain participation in the crypto market.

The latest development is a 12-week pilot program from the Federal Reserve Bank of New York, to be led by its New York Innovation Center (NYIC).

Its program acts as a proof-of-concept (PoC) project to “explore the feasibility of an interoperable network of central bank wholesale digital money and commercial bank digital money operating on a shared multi-entity distributed ledger.”

Participating in the project is a long list of names, including BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, U.S. Bank, Wells Fargo, Amazon Web Services, and more.

The PoC will explore regulatory framework and token simulations primarily in USD but that could be extended to regulated stablecoins, as well as various industry collaboration initiatives.

In the announcement, the NY Fed states that “this project will be conducted in a test environment and only use simulated data. It is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a retail or wholesale CBDC, nor how one would necessarily be designed. The findings of the pilot project will be released after it concludes.”

Additionally, Per von Zelowitz, the director of the NYIC shared that the organization “looks forward to collaborating with members of the banking community to advance research on asset tokenization and the future of financial market infrastructures in the U.S. as money and banking evolve.”

Trade-Off Required

Should CBDCs become a reality for the U.S. there will certainly be a trade-off required, and that trade-off will be one of transactional privacy. Undoubtedly, the system will come with perks and benefits, and it will be up to each individual to decide with their wallets what they want the future of financial markets to look like.

In other news, see how Apple is taking another step towards Web3 adoption.

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