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Fintech experts divided on form for U.S. central digital currency

Roll Call | Peter Feltman | Oct 27, 2020

libra - Fintech experts divided on form for U.S. central digital currency Financial technology experts agree that some form of digital payment system by the U.S. central bank is inevitable, although opinions diverge on the form it should take.

Rapid progress on a central digital currency elsewhere could threaten U.S. hegemony over global finance, and the current payment system is leaving some Americans behind financially, fintech advocates argue.

See: Do Central Bank Digital Currencies need a blockchain operating system?

China and Singapore are experimenting with digital currencies and may soon be joined by Russia, Japan and Sweden. In addition, private companies, including Facebook Inc., have proposed their own digital currencies that may challenge traditional payment networks.

In the U.S., a central bank digital currency, or CBDC, issued by the Federal Reserve, would be in the form of instantaneously transferable electronic dollars, unlike the digital dollars in bank accounts today, which require trusted parties to agree that the funds are available before a transfer can take place.

See: All-In on DeFi: Why the Days of Centralized Exchanges Are Numbered

Congress has explored whether a CBDC would help get government funds such as COVID-19 relief payments into the hands of underbanked recipients sooner.

“There appear to be a number of forward-leaning banks and bankers who see some of the opportunities with respect to CBDC, or at least are actively exploring the potential,” said Daniel Gorfine, a Georgetown Law professor who is working on the project.

Morgan Ricks, a professor of law at the Vanderbilt Law School, said there is a widespread view that a CBDC will improve inclusion, but he doesn’t support the use of a distributed ledger to track a Fed digital currency. Digital ledgers, such as blockchain, are non-centralized networks that rose to prominence as the backbone of cryptocurrencies such as Bitcoin.

See: JP Morgan Veteran Daniel Masters Explains How Blockchain Will End Commercial Banks

“I think it would be a mistake to go for a blockchain solution,” Ricks told CQ Roll Call. “It’s slow and inefficient, and it doesn’t solve any problems.”

What policymakers should think about, he said, is a system that can maintain balances and clear payments in real time and on a huge scale. The distributed ledgers in place today cannot match the Fed’s ability, he said.

Another question for policymakers is whether customers could keep their currency in an account with the Fed itself. Doing so could change the shape of banking, according to Diego Zuluaga, associate director of financial regulation studies at the Cato Institute’s Center for Monetary and Financial Alternatives.


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