Yesterday the Atlantic Council published an updated document calling for global interoperability standards around central bank digital currency (CBDC). It’s concerned that there’s a risk of creating CBDC walled gardens without standards. This echoes similar concerns raised earlier this week by a senior IMF executive who warned of the technological fragmentation of global payments.
The Atlantic Council is an American politically bipartisan organization that advocates “constructive U.S. leadership in the world alongside friends and allies.” We later analyze whether the U.S. can influence standards if its CBDC activities are limited.
The authors wrote, “The deployment of domestic CBDCs must not be considered in isolation, or the result will be walled gardens that stand apart from global commerce and economic trends.”
“Creating a CBDC in a silo is unlikely to achieve the desired outcomes in the short or long term, as it will replicate the friction of the existing payments systems. CBDCs’ potential to provide a simpler and more efficient way to move money can only be realized as long as the CBDCs can interoperate with one another.”
Most of the paper covers the many existing CBDC projects and standard setting initiatives including by the IMF, BIS, Swift and others.
What kind of CBDC standards?
Achieving effective standards requires collaboration from the government, private sector, consumers, regulators, and civil society groups. It lays out several themes to use as a framework for CBDC standards, including:
- Governance
- Privacy and data protection
- Competition and consumer protection
- Global impact and sustainability
- Transferability and accessibility.
The Atlantic Council notes that emerging economies are often more advanced in embracing new technologies, which is undoubtedly the case with CBDC. However, they tend to be underrepresented in the standards setting process.
Analysis – U.S. CBDC influence from the bench?
If one considers the standard setting process in the private sector, the first movers to get traction invariably have an outsized influence. Most countries that have gone live or have advanced CBDC pilots have experienced tepid take up. So they may not have traction per se, but they at least have real experience.
We’d observe that the United States is a relative laggard concerning CBDC. It’s doing some work, but it has to tiptoe around the topic because Republicans are vehemently opposed to the concept. Federal Reserve Chair Powell recently said that a CBDC won’t happen any time soon.
If the U.S. can help drive the standard-setting approach, it can influence the process for the future if it eventually decides to launch a CBDC.
On the one hand, the dollar is the dominant currency, so the U.S. should have an outsized influence. Here’s a tiny example of its weight. When the BIS announced Project Agora, its major tokenized cross border payments initiative, it was timed for 10 am U.S. East Coast. The project involves four participants from Europe (including the BIS), two from Asia and two from the Americas, including the New York Fed’s Innovation Center. Hence, the announcement’s timing seemed primarily designed to accommodate New York. On that basis, the U.S. might be able to influence standards.
However, if one compares it to a ball game and other central banks are on the field in play with live systems, it will be harder to make an impression on those standards if the U.S. is sitting on the bench. Its input will be theoretical or simulated rather than practical. That’s in no way a criticism of the Atlantic Council or the Digital Dollar Project. They are both doing excellent jobs. Nor does it invalidate the standards message.
