Finovate Blog

The concept of Central Bank Digital Currencies (CBDCs) is already familiar to most in the banking and fintech industry. However, the idea that the U.S. will have a functioning CBDC of its own in the near future still seems far-fetched.

PwC’s CBDC global index ranks the U.S. 18th in the globe when it comes to the maturity of its retail CBDC project. This places the U.S. significantly behind countries including the Ukraine, Uruguay, and Turkey, which all rank among the top 10.

So when the U.S. rarely ranks below the top 10 in any global comparison, what’s holding it back when it comes to CBDCs? There are three major reasons, as outlined below.

Slow

The U.S. is a big ship to turn, partially because the country’s legislative process is slow. This is true especially when compared to other countries, such as China, which have more authoritarian control over citizens.

This lack of agility can be seen in other federal initiatives, such as FedNow, the U.S. central bank’s instant payment service. Initially announced in 2019, the service will begin a phased launch of real time payments in 2023 and aims to be fully operational by 2024. As American Banker noted, FedNow should instead be called FedLate. By the time the central bank rolls out instant payments, many other private industry players will have already stepped in. In fact, some already have. Ripple, The Clearing House, and Orum are already offering real-time payment solutions.

And the U.S.’s progress is slow not only when it comes to implementing a CBDC, but even in simply making the decision to implement one. Earlier this fall, the Federal Reserve announced plans to “soon” release its research on a CBDC. While this is an important first step, the report won’t even take a stance on whether or not the U.S. should issue a CBDC.

Fragmented

This is a big one. The U.S. government is siloed; there is no central authority of who would have direct oversight or responsibility for the issuance or regulation of a CBDC.

Government branches that would want a say in the matter include not only the Federal Reserve, but also the Office of the Comptroller of the Currency, the Securities and Exchange Commission, the Federal Trade Commission, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the Financial Stability Oversight Council, the Federal Financial Institutions Examination Council, the Office of Financial Research, and state and regional authorities.

This list doesn’t even include private commercial banks, which will be crucial to the rollout of a CBDC.

This large number of stakeholders is highlighted when contrasted with India, Kenya, and Brazil, which all have central digital payment systems that are overseen by their respective central banks.

Untrusted

Simply stated, many U.S. citizens don’t trust their government. This distrust is potentially the consequence of free speech mixed with 21st century communication technologies and sharing platforms such as Facebook and YouTube, which help spread misinformation and skepticism. If you’ve ever met someone who thinks that the Earth is flat, you know what I mean.

U.S. citizens’ reactions to a recently proposed measure, the IRS reporting mandate, illustrate that the distrust of the government isn’t just for conspiracy theorists. The IRS reporting mandate was part of President Biden’s Build Back Better bill, a bill that would have required financial institutions to report inflows and outflows totaling more than $600 from bank accounts to the IRS.

The purpose of the bill was to catch tax fraud; it would generate an estimated $463 billion in revenue over 10 years. However, many citizens on both sides of the political divide viewed the additional governmental surveillance as overreach. “While the intent of this proposal is to ensure all taxpayers meet their obligations—a goal we strongly share—the data that would be turned over to the IRS is overly broad and raises significant privacy concerns,” Democratic representatives wrote to Speaker Pelosi. “We have little information about how the IRS plans to protect or use this massive trove of data. Americans expect their bank or credit union to safeguard their financial information.”

If the U.S. government issued its own digital currency, many would switch to cash or alternative currencies. It is evident that U.S. citizens don’t want to offer data on financial habits to their government. Additionally, many would likely not appreciate that the government would be able to dictate how they spend a government-issued currency. Indeed, one of the most appealing aspects for governments of a CBDC is that they can control how and when certain funds, such as stimulus checks for example, are spent.

The last shall be first and the first last

Ultimately, the headline of this piece may be a bit dramatic. The U.S. may not necessarily be the last to establish its own CBDC. However, it is already lagging behind many developed countries and doesn’t appear to be making much progress.

“The reason you could say the U.S. is behind in the digital currency race is I don’t think the U.S. is aware there is a race,” Yaya Fanusie, an Adjunct Senior Fellow at the Center for a New American Security, and a former CIA analyst, said in an interview with TIME. “A lot of policymakers are looking at it and concerned…but even with that I just don’t think there’s this sense of urgency because the risk from China is not an immediate threat.”

And as TIME described, this disconnect may cause the U.S. to cede control of previously established global financial power. “With private companies pushing deeper into the digital currency space, rival countries seeking to seize leadership, and a public that is moving further away from physical currency,” the author wrote, “the U.S. is facing a world in which it may not control or even lead the world’s payment systems.”

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