When the United States and Group of Seven (G7) responded to Russian President Vladimir Putin’s invasion, they did so not with direct military engagement but with the most sweeping set of financial sanctions ever levied against a major economy. The West froze Russian reserves, cut Russian banks off the SWIFT payment messaging system, and slapped over 6,500 individuals with sanctions—and the rest of the world took notice. In conversations we have had with central bankers, it was clear that financial sanctions made several countries think differently about the dollar.
“In this space, you could imagine the creation of a central bank digital currency – as opposed to something like bitcoin – might have a positive impact,” Small said. The U.S. dollar will be represented as tokens and settled through simulated central bank reserves on a shared multi-entity distributed ledger. The pilot will be conducted in a test environment and will use a technology provided by SETL and Digital Asset. Even the Federal Reserve acknowledges the technological innovation of digital assets as a form of money.
A U.S. CBDC will be centralized and under the purview of the Federal Reserve, the U.S. central bank. A U.S. CBDC should safely meet future needs for payment services and be free of credit risk and liquidity risk for the public. Forms of money have continually evolved since the days when people accepted seashells for payment. If you have questions about the policy priorities and potential impact of the Trump Administration’s actions on your crypto activities, plans, or pending matters before a federal financial agency or court, please contact the authors or your DWT attorney contact.
As part of the research study, the working group designed a distributed ledger-based network to settle payments between financial institutions using tokenized regulated commercial bank and central bank liabilities. The experiment was conducted in a test environment and used only simulated data. But over a span of two years, the world’s leading central banks have gone from skeptical to serious about a government form of digital currency. When the Atlantic Council’s GeoEconomics Center began this project in 2020, thirty-five central banks were exploring a CBDC; as of today, that number is 114. The first is the pandemic, or more specifically, the lessons learned from it. At the height of COVID-19, many countries—including the United States—discovered how antiquated their financial plumbing was.
As part of its continued wCBDC research, the NYIC will explore questions related to interoperability and ledger design, including how to achieve concurrence and best enforce atomic transactions across different blockchain based payment systems. Farella says the Fed may opt to create a digital dollar that is not a pure CBDC but rather a public-private hybrid currency. It currently has several studies, pilot tests and experiments underway to determine the technology’s opportunities and limitations. The presidential executive order is hardly the only time the federal government has asked itself whether it is time for the U.S. to adopt digital currency. Currently, payment apps such as Venmo or Cashapp can harvest data about what sort of purchases you make, which can be shared with third parties, often for marketing purposes.
