Today the Digital Dollar Project announced its intention to launch five central bank digital currency (CBDC) pilot programs within the next twelve months. The Project is a private initiative launched in January 2020 by former Chair of the Commodity Futures Trading Commission (CFTC) J. Christopher Giancarlo’s Digital Dollar Foundation and Accenture. Late last year, the Project outlined a set of nine pilot scenarios, and Accenture will provide initial funding for at least five of these.
The Project aims to both conduct research and engage with the public about a potential central bank-issued digital currency.
On more than one occasion, U.S. Federal Reserve Chairman Jerome Powell has stated that the U.S. doesn’t need to be the first to launch a digital currency.
In today’s statement, Christopher Giancarlo concurred, “The U.S. doesn’t need to be first to the central bank digital currency, but it does need to be a leader in setting standards for the digital future of money.”
Since the Digital Dollar Project launched, the Federal Reserve tapped the Massachusetts Institute of Technology (MIT) to work with the Boston Fed on a multiyear hypothetical CBDC. The Digital Dollar Project made it clear that it intends to complement this work.
So why is the Digital Dollar Project still needed?
We can think of several good reasons. For starters, a CBDC is a massive undertaking with many areas to investigate. Having more than one group exploring these avenues seems beneficial, especially if one group is more academic and the other is a practitioner. It also creates a bit of competition (even if intended to be complementary), leading to hopefully better solutions delivered more quickly.
But one has to ask what’s in it for Accenture given this is not a small undertaking?
Firstly, another set of pilots could accelerate a CBDC launch when it’s deemed to be needed. Secondly, it may help Accenture’s ESG positioning if it can demonstrate strong pilots for the unbanked and underbanked. Next, Accenture gets to position itself for CBDC-related private sector work and possible future rounds of public work. And finally, it gets to demonstrate its preferred technology choice more deeply.
The consultants have been involved in multiple CBDC projects around the world, including Canada, Singapore, Sweden, Europe and France. Clearly, they can bring that experience to the table and should be able to move relatively quickly. That could mean it accelerates a CBDC launch. However, deciding whether to go ahead with a CBDC is ultimately a political decision, even if it’s influenced by research and understanding.
On the political front at the start of COVID-19, there were multiple U.S. legislative proposals for a digital dollar to help to distribute aid. Distributing money was especially slow to those who were most in need. Hence the priority to target the under and unbanked. But given the time it takes to implement a project of this scale, there was no way to implement a digital dollar fast enough to address those specific needs. However, getting that sort of infrastructure in place could be a high priority for the current government and might create some political momentum. It also helps Accenture’s ESG credentials.
And the launch of a CBDC sooner rather than later is in Accenture’s interests. The landscape to implement CBDC projects is not just a matter of winning work from central banks. Any CBDC is very likely to be two-tiered, which means all the financial institutions would need to integrate with the CBDC. This is where the real potential for landing consulting projects lies for Accenture. For every CBDC in any one country, there will be numerous private sector projects.
If the chosen CBDC solution is token-based, then that also gives Accenture a foot in the door for consulting on the blockchain projects that might integrate with the CBDC. And the Digital Dollar Project has expressed a token-based solution as its preference.
On the topic of tokens, the consensus from CBDC research around the world seems to be that the full benefit of a wholesale CBDC will only be achieved if it is tokenized. However, for a more general retail CBDC, so far, many central banks are not leaning that way. If Accenture is paying for pilots, it can potentially demonstrate its ideal solution.
For its part, the Project outlined the three general areas it plans for the pilots:
- gathering empirical evidence to inform the public policy and technology
- informing stakeholders of challenges and opportunities, including specific designs
- evaluating and cataloging emerging standards and policies, including international
“Central bank digital currencies will play an important role in how we modernize our financial systems — increasing access to and inclusion within them while also providing a valuable innovation frontier for new products and services in conjunction with other key innovations such as digital identity,” said David Treat, a senior managing director at Accenture, in the statement.
“Accenture is excited to collaborate with the entire stakeholder community to learn from pilot programs across a range of use cases and share the outcomes and insights in an open and transparent manner.”
