US Treasury Weighs Prospects For CBDC Adoption

The US Department of the Treasury under President Joe Biden is sketching the technology that can be used to create a central bank digital currency (CBDC), even as lawmakers remain split on whether to go ahead with the plan.

Policymakers are currently deliberating on the merits of a CBDC and what it would entail. Nellie Liang, the undersecretary of the Treasury for domestic finance, delivered a speech at an event hosted by the Atlantic Council think tank on Wednesday, outlining the administration’s plans on CBDCs.

CBDCs are a type of digital currency that would be issued by the US Federal Reserve and would therefore be official digital units of account. 

“The Fed has also emphasized that it would only issue a CBDC with the support of the executive branch and Congress, and more broadly the public,” Liang said.

She noted that CBDCs are among the options for upgrading the legacy capabilities of central bank money. Another one is real-time payment systems, like the FedNow Service, which the Fed expects to launch this year.

“Even as policy deliberations continue, we are engaging in the technological development of a CBDC so that we would be able to move forward rapidly if a CBDC were determined to be in the national interest.”

The FedNow Service will provide interbank clearing and settlement that will allow fund transfers to process almost in real-time under a 24x7x365 system. It will be available to all depository institutions in the US. The target release period for this plan is between May to July this year.

Unlike the FedNow Service, a CBDC would involve both a new form of central bank money and a new set of payment rails, Liang said.

“Both real-time payment systems and CBDCs present opportunities to build a more efficient, competitive, and inclusive US payment system,” she added.

A working group set up to discuss the possible launch of a digital dollar will now meet regularly to develop an initial set of findings and recommendations. It will be made up of leaders from the Treasury, the Federal Reserve and some White House offices like the National Economic Council and National Security Council, and be expected to provide interim public updates.

Implications for global financial leadership, national security and financial inclusion are some of the areas the group will study.

The Treasury official made it clear that the relevant agencies under the federal government are still not reassured by the concept of having a CBDC in the first place, but that the US still has an interest in exploring their interaction with the existing financial system.

Liang’s comments come about a year after President Biden signed an executive order that asked federal agencies to lay a roadmap to regulate crypto and identify risks for innovation, including the role of a CBDC. Under that order, the Treasury was asked to partner with interagency colleagues towards a unified digital asset strategy.

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