The long-term status of the US Dollar will not be affected even if other major jurisdictions adopted a Central Bank Digital Currency (CBDC) before a US CBDC. This is the personal opinion of Governor Christopher J. Waller, a member of the Board of Governors of the Federal Reserve System. He was speaking at the “Digital Currencies and National Security Tradeoffs” symposium at Cambridge, Massachusetts, on October 14, 2022.
According to the Atlantic Council, 105 countries, representing over 95 percent of global GDP, are exploring a CBDC, ten countries have fully launched a digital currency, 9 of the G20 countries are exploring a CBDC, with 16 already in development or pilot stage, and many countries are exploring alternative international payment systems.
Although several jurisdictions are exploring the role of a CBDC, Governor Wallace shares a differing opinion on the need for the US Fed Reserve to create a digital currency at the moment. “In January 2022, the Federal Reserve Board published a discussion paper on CBDCs to foster a broad and transparent public dialogue, including the potential benefits and risks of a U.S. CBDC. To date, no decisions have been made by the Board on whether to move forward with a CBDC. But my views are well known. As I have said before, I am highly skeptical of whether there is a compelling need for the Fed to create a digital currency”, he said.
Similarly, whilst addressing the American Enterprise Institute in Washington, D.C., on August 5, 2021, Governor Wallace said: “In all the recent exuberance about CBDCs, advocates point to many potential benefits of a Federal Reserve digital currency, but they often fail to ask a simple question: What problem would a CBDC solve? Alternatively, what market failure or inefficiency demands this specific intervention? After careful consideration, I am not convinced as of yet that a CBDC would solve any existing problem that is not being addressed more promptly and efficiently by other initiatives”.
Governor Wallace reiterated that the US dollar remains the dominant currency for international trade and that 60 percent of disclosed official foreign reserves were held mostly in liquid U.S. Treasury securities. “The factors driving the dollar’s role as a reserve currency are well researched and well demonstrated, including the depth and liquidity of U.S. financial markets, the size and openness of the U.S. economy, and international trust in U.S. institutions and the rule of law. We must keep these factors in mind in any debate regarding the long-term importance of the dollar”, he stated.
Governor Wallace challenged advocates for a US CBDC before other major foreign CBDCs. “Though CBDC systems may be able to automate a number of processes that, in part, address these challenges, they are not unique in doing so. Meaningful efforts are under way at the international level to improve cross-border payments in many ways, with the vast majority of these improvements coming not from CBDCs but improvements to existing payment systems”, he explained.
In conclusion, Governor Wallace recommended that emphasis be placed on exploring salient CBDC-related topics, like its effects on financial stability, payment system improvements, and financial inclusion.