by Thomas Trépanier
The U.S. Digital Dollar is coming! It won’t be arriving tomorrow, however, and that’s a good thing. Before the United States launches its own Central Bank Digital Currency (CBDC), patience must prevail over rushing to market. As the Federal Reserve takes time to survey the global CBDC landscape, we see the dollar’s particular importance in a fresh new light. Bringing a CBDC online is a challenge for any nation—doing it for the U.S. dollar will be even harder due to its status as the world’s reserve currency. The timeline on moving forward with this complex undertaking seemed to shrink, however, when the Digital Dollar Foundation, a not-for-profit organization advocating for public discussion about a United States CBDC, teamed up with Accenture.
Together, they’ve published a white paper, the Digital Dollar Project, that lays out proposals for a U.S. CBDC. This 50-page document offers a deep dive into the U.S. CBDC’s potential structure and notes the special place that it would have in shaping—or reshaping—international economics. The paper portrays tantalizing digital dollar benefits, including:
- Improvements in time and cost efficiencies
- Broader central bank money and payment accessibility
- Easing the overall transition to cashless
- Supporting USD’s world reserve currency status
For many of the white paper’s readers, the takeaway was that a US CBDC must come online ASAP. The arguments to launch are compelling, but there are ample reasons that many others—the Fed among them—are saying, “Not so fast.”
Roxe: Providing a CBDC Assist
On August 13, Dr. Lael Brainard, a member of the Board of Governors of the Federal Reserve System, addressed the Federal Reserve Bank of San Francisco with a speech, “An Update on Digital Currencies.” She notes early in her talk, “The COVID-19 crisis is a dramatic reminder of the importance of a resilient and trusted payments infrastructure that is accessible to all Americans.”
Nonetheless, Dr. Brainard indicated that the Fed doesn’t intend to rush a digital dollar. Throughout, she stresses the Fed’s “experimental” nature in areas like blockchain. “The Federal Reserve is active in conducting research and experimentation related to distributed ledger technologies (DLT) and the potential use cases for digital currencies,” she says.
Dr. Brainard points out that a CBDC-enabled global economy becomes even more interconnected, for better or worse. “Since financial and payments systems share extensive cross-border linkages,” she says, “a poorly designed CBDC issued in one jurisdiction could create financial stability issues in another jurisdiction.”
Here’s where Apifiny’s Roxe Global Instant Settlement Network (Roxe) comes in. Roxe was designed to improve international remittance, which has been rendered slow and unreliable by the steady fragmentation of banks and national financial systems. Roxe is the solution, connecting these scattered entities with a global instant settlement network built on a lightning-fast blockchain.
Roxe can strengthen CBDCs, which often use blockchain technology to leverage the benefits of DLT. With blockchain-based currencies, online transactions such as money transfers and payments become easier and more transparent. Cross-border currency exchange is transformed with blockchain technology, enabling a simpler, more standardized online exchange between currencies.
Roxe can enable a seamless convergence of banks, central banks, and other ecosystem partners. Roxe’s blockchain-based settlement network has the potential to enable near-instant settlement for global fiat currencies and digital assets. Roxe could help develop next-generation remittance and payment products for the digital dollar, which would exchange value effortlessly with other network participants.
Roxe is ready to play its part in the international expansion of CBDCs. A survey issued by the Bank for International Settlements (BIS) revealed that 70% of respondent banks are engaged in, or planning to begin, a CBDC. For example, Asia sees major studies and pilot projects unfolding in Japan, Cambodia, South Korea, Malaysia, and Thailand. China has underscored its lead by announcing digital yuan trials at Beijing-based McDonald’s, Starbucks, and Subway restaurants.
These nations’ interest makes sense: CBDC’s can address critical gaps in traditional finance. With the potential to improve monetary security, transparency, cost, speed, and access, a CBDC has the power to help next-gen digital economies advance their payment systems in the face of declining cash use. Besides cross-border payments and international remittances, CBDC’s can evolve financial value transfer for retail and wholesale payments, and peer-to-peer payments. Government benefits, such as emergency COVID-19 aid, could be distributed instantly via a CBDC, rather than taking months.
These universal CBDC benefits appear to make the digital dollar a no-brainer. However, there are reasons why the Fed is moving forward so methodically. Beyond serving as a store of value and medium of exchange for Americans, the U.S. dollar acts as the world’s reserve currency, with proven stability against most other currencies that makes it central to global commerce.
Fortunately, Dr. Laird and her colleagues at the Federal Reserve are keenly aware of this. “Given the dollar’s important role, it is essential that the Federal Reserve remain on the frontier of research and policy development regarding CBDCs,” she said. As the dollar goes, so do foreign exchange transactions, bank funding, imports/exports, central bank foreign exchange reserves, and international loans.
A Digital Dollar Worth Doing
With its ability to vastly streamline cross-border settlement, Roxe’s blockchain architecture can help spark a shift in world commerce. An instant global settlement network is the perfect partner for ensuring CBDC interoperability.
At the same time, it’s reasonable that the Federal Reserve is exercising caution with the digital dollar. The Fed appears to be on the smart path with blockchain by taking a long look at DLT’s role in a system they can control, one that serves wholesale and retail users securely.
Let’s do the digital dollar right. Time is of the essence, but it must also be time well spent—then the U.S. CBDC will be everything it can be.
— Thomas Trépanier is Director of Business Development for Roxe at Apifiny