President Joe Biden on March 9 ordered government agencies to begin work on creating a digital US dollar, weighing the risks and benefits of a move that could be a game changer for the global financial system.
Coming amid the explosive rise of private crypto currencies like bitcoin, the US effort will place “the highest urgency on research and development efforts into the potential design and deployment options of a United States” digital currency, according to an executive order signed by Biden.
“A United States CBDC [central bank digital currency] may have the potential to support efficient and low-cost transactions, particularly for cross-border funds transfers and payments, and to foster greater access to the financial system,” the order said, adding that it could also be less risky than private digital assets.
The world’s largest economy will join more than 100 countries that are exploring or have launched pilot programmes with their own CBDC, including China’s digital yuan.
Secretary of the Treasury Janet Yellen said agencies will “evaluate the potential financial stability risks of digital assets and assess whether appropriate safeguards are in place”.
And due to the global implications of using digital assets, Washington will work with other governments on the effort that “will also address risks related to illicit finance, protecting consumers and investors, and preventing threats to the financial system and broader economy”, Yellen said in a statement.
Governments and investors around the world rely on the US greenback as a secure investment, and the dollar is central to commerce as well, including to the global oil market.
White House economic adviser Brian Deese said on CNBC that “maintaining US global leadership” is a central goal of the effort, but noted the study will also look into “unintended consequences”.
Mark Sobel, a former treasury official who is now a senior adviser at the Centre for Strategic and International Studies, said the order is a “welcome development” in preparing the US for the “future of money”.
He called for the establishment of a “legislative framework” to handle digital assets like crypto currencies and CBDCs, which could ensure financial stability without compromising innovation.
Biden’s executive order will have agencies including the treasury department examine issues including consumer protection, financial inclusion and use of digital assets for illicit activities.
The reporting deadlines are staggered, ranging from 30 to 180 days, and will include consultations with the private sector.
The US “can move quickly, but we can also move in a way that’s smart and that’s inclusive”, a senior administration official told reporters.
Administration officials have downplayed competition from Beijing, with one saying the US dollar “has been and will continue to be crucial to the stability of the international monetary system as a whole” and those issued by foreign central banks “do not threaten this dominance”.
In addition to China, Nigeria in October launched its own virtual money, while El Salvador has allowed bitcoin to serve as legal tender.
Digital assets, including crypto currencies, have seen explosive growth in recent years, surpassing a $3 trillion market cap in November, from $14 billion just five years prior.
The White House said around 16 per cent of adult US citizens – approximately 40 million people – have invested in, traded or used crypto currencies.
However, “without oversight, the explosive growth in crypto currency use would pose risks to Americans, to the stability of our businesses, our financial system and our national security”, the official said.
Another official stressed the need to ensure that everyone in the US benefits from advances, since “earlier forms of financial innovation have ended up hurting American families while making a small group of people very rich”.