Published: January 16, 2025 at 9:24 pm
Updated on January 16, 2025 at 9:24 pm
With the global race for digital currency heating up, the US’s decision to forgo a Central Bank Digital Currency (CBDC) may prove to be a major miscalculation. By opting out, the US could be handing the upper hand to countries like China, jeopardizing the dollar’s dominance and skipping valuable economic prospects. The implications of this choice are worth unpacking, especially when it comes to the geopolitical and competitive landscape.
During a recent Senate hearing, Scott Bessent, who is expected to be nominated as Treasury secretary by President-elect Donald Trump, took the hot seat to address various financial matters. When Republican Senator Marsha Blackburn asked about a potential digital dollar, Bessent’s response was clear: “I see no reason for the US to have a central bank digital currency.” He reasoned that countries pursuing CBDCs often lack alternative investment options. The US, according to him, has plenty of secure assets.
It’s worth noting that Bessent’s statements came during a hearing where his nomination was merely anticipated. His ties to Trump and his previous position at Soros Fund Management further complicate the narrative, especially when he has hinted at supporting the government’s crypto initiatives.
The US’s choice to delay or reject a CBDC could have significant geopolitical ramifications. Other nations, particularly China, have been aggressively developing their own digital currencies for years. If the US continues to fall behind, it risks losing its status as the global reserve currency and diminishing its ability to impose economic sanctions or influence financial markets.
Currently, the US ranks 18th in the global CBDC development race, trailing nations like Sweden and South Korea. This delay could mean missing out on the benefits of a digital currency, such as streamlined transactions, increased financial inclusion, and economic growth. The fragmented regulatory environment in the US, with multiple agencies involved but no central authority for payments, adds another layer of complexity and slows down progress, especially compared to China’s more centralized system.
Despite Bessent’s skepticism, there are numerous reasons why a US CBDC could be beneficial:
A CBDC could streamline payments, including cross-border ones, making them safer, quicker, and cheaper.
A CBDC could make financial services more accessible, especially to the underbanked and low-income families.
As a liability of the Federal Reserve, a CBDC would be free from the risks that come with other digital currencies, providing a safer currency option.
A US CBDC could serve as a testing ground for new financial technologies, encouraging innovation.
This would enhance international trade and financial transactions.
A US CBDC could help maintain the dollar’s prominence as a global currency.
A US CBDC could facilitate more efficient government payments and tax collections.
A well-designed CBDC could protect user privacy while deterring illicit activities.
In conclusion, the US’s decision against a CBDC might be a strategic blunder, as it risks diminishing its geopolitical influence and missing out on key economic and technological developments. The potential upside of a US CBDC—be it in payment efficiency, financial inclusion, or maintaining the dollar’s role—underscores the need for a reevaluation of this decision. In an ever-evolving digital currency landscape, the US must ensure it keeps pace to protect its standing in the global financial system.
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