Biden’s Digital Dollar Could Rile Banks and Crypto

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The Biden administration’s plan to study whether to launch a digital dollar may bring together some strange bedfellows: banks and crypto companies.

It isn’t yet clear what the administration’s statement seeking to “explore a US Central Bank Digital Currency” and its potential to work “in a manner that protects Americans’ interests” might mean in practical terms. A CBDC could work in a number of different ways. But both traditional deposit-taking lenders and some upstart digital currency companies have had worries about what would happen if US dollars become digitized in ways that might enable them to move or be stored independently or on a government-owned network.

The Bank Policy Institute, an industry group that represents large US banks, said Wednesday that it was confident future research would conclude that “CBDCs would pose considerable and unavoidable costs to the financial system and economy while producing few, if any, tangible benefits.”

Meanwhile, some crypto firms are betting on digital currencies to themselves possibly become widely used forms of money. Others have also created stablecoins that are pegged to the US dollar and which can function as digitized equivalents within many transactions—achieving what a CBDC might aim to do.

Circle Internet Financial, which issues the USD Coin, has said that a purely centralized digital dollar if poorly designed “would not only pose competitiveness and other risks to the US banking and payment system, it would require the government to be in the business of picking technology winners and losers.”

A number of these concerns have thus far had traction in key places in Washington. Federal Reserve Chairman Jerome Powell has said that a potential CBDC could be “a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks.” The Fed is already closely studying the issue.

But much of this discussion was taking place before Russia’s invasion of Ukraine. Recent days and weeks have been a stark reminder that money movements aren’t just about efficiency and financial risk but also about geopolitics. Part of the appeal of a centralized CBDC might be that Washington could in theory, with relative ease, switch off a certain entity or nation’s ability to move or use dollars. Today this often happens indirectly via clearing banks or regulated US firms that must follow sanctions laws. But some in Washington might not trust those players. There is also physical cash, and key networks that are under other jurisdictions like Swift.

China and Russia have already sought more state digital money control. China has many constraints on crypto’s use and has been developing the e-CNY digital yuan. Russia has debated its own crypto restrictions, and a digital ruble under development is viewed as intended to be used for payment settlement, less so for individuals to store value, according to a review by the Institute of International Finance. Right now, Russia hardly needs its citizens dumping rubles to buy bitcoin.

More top of mind now may be whether a government-issued digital dollar would enhance or diminish its global role. Perhaps a review would find that regulated private tokens pegged to dollars deposited in banks are ultimately the best-balanced tool. Some in crypto might also welcome a version of a US CBDC as a proof point of digital assets overall, and a way to ease the use of other cryptocurrencies in transactions. Bitcoin surged on news of President Biden’s broad executive order about crypto.

President Biden’s cryptocurrency executive order may have produced more questions than it’s answered: What’s a central bank digital currency? How is it different from crypto? And why hasn’t the Fed introduced a digital dollar? WSJ’s Dion Rabouin explains. Composite photo: David Fang

There will also be other debates, like potential benefits for financial inclusion. Many established players might ultimately be agnostic, too. For them it is the endpoints—credit cards, or digital wallet apps—that matter, not what is moving behind them. Some banks might also ultimately view versions of a CBDC as a way to cut transaction costs.

Figuring out the potential winners and losers would depend on the design of a digitized dollar. Investors shouldn’t place their bets yet on what is far from just a wonky policy issue.

Write to Telis Demos at

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