Is the White House late to the CBDC game? Beware of volatility and hacking, experts say
The Biden administration recently unveiled a comprehensive strategy for implementing a central bank digital currency (CBDC) over the next several years.
The aim is to create a digital currency for the US, with the idea that it will help the US cement its position as the world’s financial leader. So far, the Department of Energy, Commerce, Treasury and other organizations have discussed the framework, which outlines the regulation of digital assets, including crypto.
Remember how in March the White House issued Executive Order 14067, “Ensuring Responsible Development of Digital Assets.” Apparently, the government is reacting to the recent phenomenal expansion of digital currencies.
“Families and businesses can go bankrupt”
Not everyone is on board with CBDCs. In accordance Yoda Regmanaging director i Qonetum Finance, SmartSwap.Exchange and CBDSCAny CBDC built on the current fiat-pegged stablecoin concept is subject to unexpected volatility for various reasons, black swan events and high risk of hacking.
Regev says the crypto industry is a small market compared to the $3 trillion global financial market, and in the cryptocurrency’s decade it has suffered billions in losses due to hacking and Black Swan events.
“In reality, a typical reason is that holders were not careful enough to understand fraud, hide their private key or recovery phrase. Such human vulnerability could cause many families and businesses to go bankrupt when CBDCs become commonplace,” he says.
Late for the game
Calling the digital asset framework “inadequate” Martin Hiesboeckhead of research at maintainsays the US is late to the CBDC game, with most advanced economies already running trials.
“From a European and global perspective, it is a welcome first step in the right direction. It promises less inter-agency conflict (the CFTC is winning, people familiar with it), a common nomenclature (‘digital assets’ not ‘cryptocurrencies’), and a comprehensive, modern approach to regulation,” says Hiesboeck.
A threat to the value of the dollar?
There is another potential drawback: how to ensure that a CBDC will preserve monetary and financial stability as well as complement existing means of payment, Ali sellsengineer at Akash blockchain, says.
Other key policy considerations include how to preserve the privacy of citizens and maintain the ability to combat illicit finance, he says.
“A major potential benefit of a US-issued CBDC could be to preserve the dominant international role of the US dollar. However, it is important to consider the implications of a potential future state where many foreign countries and currency unions may have introduced CBDCs,” says Merchant. “Some suggest that if these new CBDCs were more attractive than existing forms of the US dollar, global use of the dollar could be reduced – and a US CBDC could help preserve the dollar’s international role.”
Georgia QuinnGeneral Counsel of Anchorage Digital says CBDC development is a red herring and that what the industry really needs instead is clear, consistent stablecoin regulation to strengthen 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,” she says.
CBDCs should complement wider ecosystem
Experts further point out that The White House Fact Sheet sets a clear tone of ambitions of the Biden administration to become a global leader in digital assets. If all the recommendations are followed, there will be a flurry of activity from US agencies in the coming months.
“The most interesting shift is probably the attitude towards a US CBDC, where these recommendations give significant momentum to the work of the Federal Reserve. That in itself is not a bad thing for the crypto industry – most countries see CBDCs as a critical part of a diverse and healthy digital asset ecosystem and a catalyst for further innovation, rather than an instrument to replace existing digital assets,” Varun Paulsays director of the central bank’s digital currencies and financial market infrastructure in Fireblocks.
After all, CBDCs should help underpin the value of other digital assets and provide a significant degree of credibility, and they can be designed in such a way that they complement rather than conflict with the wider ecosystem, he adds.
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