It is already a fact that, along with some banking giants, the New York Federal Reserve will pilot a central bank-backed digital currency, or CBDC as we know it. This, in an attempt to know if it would boost or hurt the position of the dollar in the global economy.
As you know, banks have for years explored the use of blockchain in their businesses, from interbank payments to mortgages and cross-border operations, but what is disconcerting today is that this project is taking place amid a slump in cryptocurrency markets following the collapse of digital asset empire FTX of Sam Bankman-Fried, which occurred last week.
The pilot test, which will last 12 weeks and will be carried out by the Innovation Center of the Federal Reserve Bank of New York (NYIC), will take place at a time when federal regulators in the United States have not No consensus has been reached on whether or not to launch a digital dollar (or “crypto-dollar” or whatever it is going to be called) in the country.
According to the New York Fed, they seek to explore the feasibility of an interoperable network of central bank wholesale digital money and commercial bank digital money operating on a distributed and shared ledger of multiple entities, all under a web of regulated liability.
The banking giants that will participate in the pilot program by issuing tokens and settling transactions through simulated central bank reserves, are: BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, US Bank, and Wells Fargo.
Per von Zelowitz, director of the NYIC, says they hope to collaborate with members of the banking community to advance the investigation into tokenization of assets and the future of financial market infrastructures in the United States, as money and banking evolve.
Certainly, the project will test the technical feasibility, legal feasibility and commercial applicability of distributed ledger technologybesides that it will simulate tokens and will explore regulatory frameworks.
The pilot scheme could potentially be extended to multi-currency trading and regulated stablecoins (stablecoins), predicts the Fed.
After President Joe Biden issued an executive order aimed at establishing a framework on digital assets, some legislators questioned what the role of Congress might be in passing legislation in support of a CBDC and how a digital dollar could reduce similar innovations from the private sector.
In the words of Tony McLaughlin, managing director of emerging payments and business development in Citigroup’s Treasury and Business Solutions divisionprogrammable US dollars may be needed to support new business models and provide a foundation for much-needed innovations in financial arrangements and infrastructure.
Such projects, which focus on digitizing central bank money and individual bank deposits, could be expanded to take a broader view of the opportunity, he says.
Although initial work will focus in simulating digital money issued by institutions regulated in US dollarsthe concept could be extended to operations in multiple currencies and stablecoinsnormally backed one by one by another asset such as the dollar or the euro, and on which suspicions of fraud weigh, especially after the collapse of FTX and other “exchanges”.
By the way, this is not the first foray with a CBDC in the United States. The Boston Federal Reserve teamed up with the Massachusetts Institute of Technology (MIT) before the largest central bank released a preliminary paper in January laying out the pros and cons of issuing a digital currency.
The Fed has not definitively committed to launching a CBDC, and not all of its officials are convinced of its necessity. So much so that just last month the governor of the central bank, Christopher Waller, said he doubted that the introduction of a digital currency would boost or hurt the dollar in the global economy.
The “crypto world” is inevitable
All new technology generates opposing camps: on one side are those who support it and on the other who hate it. Almost always, among the latter are those who see their private interests affected. However, the “crypto world” is an inevitability in the current circumstances of history, and the youngest will end up imposing it.
Blockchain technology – which gave birth to bitcoin – demonstrated that the banking system is expendable. It is not surprising, then, that the banks themselves – central and commercial – are the most skeptical of forms of decentralized money and technologies that allow the creation of “scarcity” and property in a digital world that until recently was infinite.
Faced with this overwhelming wave of technology and generational change, central banks and, in general, the monetary system will have to adapt to survive, and, paradoxically, they will find their salvation in the “crypto” world itself.
So that It is a matter of time before we all have a “crypto-dollar”, a “crypto-peso”, “crypto-euro”, etc.., that as long as they are one more option in the middle of a “money” competition, they will not have a major problem.
The risk for citizens, however, is that financial and monetary authorities want to impose CBDCs as single currencies and prohibit independent forms of money such as bitcoin.
Not only that: an official digital currency gives the ruler complete control over what, how, when, who and how much a person spends, giving him the power to override – if he wants – his way of earning a living, decide what he can spend on or take away everything he earns – through taxes – if he wishes. Let’s stay alert, because we will have to fight that battle for individual freedom and privacy.
Editor’s Note: This text belongs to our Opinion section and reflects only the author’s vision, not necessarily the High Level point of view.
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William Beard Master in Economics from the Austrian School; liberal, gold market specialist and editor of investment newsletter Top Money Report