Financial news

Year in, and year out, people continue to wonder how long the crypto hype is going to continue. The volatility of the market and the crashes it has faced keep leading some to believe that the digital currency’s time has come to an end. But without fail, it always pops back up again… why?

This month at The Fintech Times we’re going to be looking at what makes digital currencies so popular. We will also be uncovering the emerging alternatives to cryptos and why the digital future looks so intriguing. Our second focus this month will be on central bank digital currencies (CBDCs). We continue by finding out more about the progress of CBDCs such as the US’ so-called digital dollar.

We gathered a variety of views from across the industry as we hear from Aarti Dhapte, Anthony Oduu, Georgia Quinn, Jonathan McCollum and Jason Lau on their thoughts about a US central bank CBDC. 

Hurdles to overcome before a digital dollar becomes a reality.

Aarti Dhapte is a senior analyst at the analysis company Market Research Future. She explained the challenges to overcome to make success of the digital dollar.

She said: “There may be drawbacks to a CBDC, notwithstanding the possibility that it might offer consumers and companies a secure, digital payment alternative as the global payment system develops.

“The US Federal Reserve highlighted maintaining financial stability and ensuring that the digital dollar will ‘complement conventional means of payment’ as two challenges. The central bank must also address significant policy concerns before enacting a CBDC, including guaranteeing that it protects Americans’ privacy and that the government keeps its authority to combat unlawful money.”

The UK and US “do not need a CBDC right now”

Anthony Oduu is a co-founder and the CTO of Verto, a cross-border payments platform for businesses. He explains why we may not see the likes of a digital dollar or ‘britcoin’ for some time.

Oduu said: “The US and UK are still in the research and development stages of CBDCs. There are multiple symposiums, consultations and feasibility studies to determine the target use cases and design of these CBDCs. The US released seven reports publicly in September this year on issues related to CBDCs, such as investor protection, anti-money laundering and potential designs.

“The Britcoin is not as widely anticipated nor covered by mainstream media nowadays, as all eyes are on British politics and its economy. The new British PM, Sunak, might push research and development efforts for the Britcoin further as it’s become evident that he’s passionate about digital currencies.

“However, the UK and US arguably do not need a CBDC right now, as their banking infrastructure is modern and efficient enough to carry out retail and wholesale transactions adequately. There are other issues to worry about, like the US midterm elections, navigating through the UK’s economic challenges and surviving in a gloomy macroeconomic environment.

“A CBDC will benefit China more than the US and UK, as it seeks to modernise the public payments infrastructure and reduce the dominance of private rails like Alipay and WeChat Pay. The e-CNY is also helping to make cross-border transactions with China more efficient and enticing, which would help increase the Yuan’s standings in the currency markets.”

CBDCs are “a red herring”

Georgia Quinn is the general counsel for Anchorage Digital, a crypto platform providing institutions with integrated digital asset financial services and infrastructure solutions. Quinn shares her view on what the next step should entail bolstering the US dollar for the digital age.

She explains: “It’s long past time for the industry and policymakers to get serious about taking the next steps toward comprehensive crypto regulation. No legitimate player in the industry disagrees that consumer protections, anti-money laundering, and security are top priorities for increasing trust in the digital asset ecosystem.

“CBDC development is a red herring. What the industry really needs instead is clear, consistent stablecoin regulation to bolster and upgrade the US dollar for the digital age. At the end of the day, we need more, not fewer, federally regulated crypto institutions to create a safe, secure crypto economy.”

Positives of a risk-free digital dollar

Jonathan McCollum is chair of federal government relations at law firm Davidoff Hutcher & Citron. He gives his view on the positives that a digital dollar could bring to the US.

He said: “The COVID-19 pandemic accelerated the rapid advance of digitalisation and precipitated a declining use of cash that is compelling central banks to innovate in order to simply keep up. There is pressure to provide a digital version of notes and coins as a public good, to maximize the benefits of the digital revolution while mitigating its risks. The advent of a digital dollar will do just that.

“Creating a cash-like instrument in digital form would bring the functionality, efficiency, and reliability of the dollar into the digital realm, giving the general public access to digital money that, unlike cryptocurrencies, does not fluctuate in value. There’s no need to check the value of your digital dollar against the central bank before transacting, resulting in a digital instrument that is free from credit and liquidity risk.

McCollum also explained how a digital dollar could support the unbanked:

“Access to a government-issued digital currency can be life-changing for the millions of unbanked and underbanked Americans who are held back from full participation in the financial system due to insufficient credit histories, prohibitively expensive fees levied by financial institutions, and other socioeconomic factors that put banking services out of reach. Those without a bank account are just as able to transact in cash as anyone else, and they are not required to share any identifying information to access it.

“A risk-free digital currency, which individuals can use through bank and non-bank payment channels, can create new opportunities to transact without the physical proximity that cash requires, and without relying on the exploitative credit sources, payday lenders and such that draw those without solid banking relationships into a vicious borrowing cycle.

“Beyond the individual benefits of ease of use, accessibility and reliability, a digital dollar can provide a safe foundation for private sector innovations; not squander creativity and ingenuity, as its detractors may suggest. For everyone and anyone to access a digital dollar, interoperability is key. It must be accessible through a traditional bank account, on a cell phone, on a payment card, or in any number of other apps, payment providers, and low-tech platforms. The resulting competition would also lower costs across private sector payment providers, ushering in greater payment innovations from private sector firms of all sizes rather than just those who can absorb the costs and risks of R&D.”

US stakeholders will continue prioritising crypto exchanges 

Jason Lau, chief operating officer at cryptocurrency exchange Okcoin, explained: “The Biden Administration has shown an interest in developing a digital dollar and has released a rough roadmap for its creation. However, I think there will be a lack of interest from Congress and the general public in enabling this roadmap.

“Instead, I foresee that US stakeholders will focus on regulating crypto exchanges (like with the Lummis-Gillibrand Congressional bill) and installing consumer protections in this space.”