US weighs CBDC plans

The U.S. government is exploring the possibility of adopting a central bank digital currency (CBDC), according to Under Secretary of Treasury Nellie Liang. In a speech to the Atlantic Council, Liang said a consortium of government agencies would be meeting to discuss whether a CBDC could help to reduce frictions in cross-border payments or other activities. She added that deliberations would take “some time to complete” but that a group of government agencies, including the Treasury, Fed, and White House offices, will meet regularly in the coming months and offer interim updates to the public.

The U.S. dollar is currently the world’s “reserve currency”, accounting for over half of the world’s central bank reserves and playing a key role in settling international transactions. Liang’s comments offer the most comprehensive insight into the administration’s latest thinking on a CBDC, and come a year after President Biden issued an executive order directing agencies to study a CBDC and come up with a government-wide approach to regulating digital assets.

Liang said the U.S. is considering both retail and wholesale CBDCs. A wholesale CBDC would be a tokenized central bank liability that potentially could support around-the-clock payment activity and secure settlement of transactions. A retail CBDC, on the other hand, would be accessible to the general public and would complement, rather than replace, cash. Liang said policymakers are considering granting access to a wholesale CBDC to institutions not currently eligible for central bank accounts, and that a wholesale CBDC might also be used as a backing asset for stablecoins, which could make it easier to transfer value between stablecoins.

Liang emphasized that a CBDC would be legal tender, convertible one-for-one into other forms of central bank money, and would clear and settle nearly instantly. However, a CBDC would also need to protect the privacy of users and minimize the risk of illicit financial transactions. The Federal Reserve has indicated that it would only issue a CBDC with the support of the executive branch and Congress, and more broadly the public.