While China and the European Union rush forward on creating a digital currency, the U.S. doesn’t see the need for one in at least the next five years.
In a hearing before the House Financial Services Committee on Dec. 5, Treasury Secretary Steven Mnuchin said that neither he nor Federal Reserve Chairman Jerome Powell believe a central bank digital currency will be needed until at least 2025.
“Chair[man] Powell and I have discussed this,” Mnuchin said 53 minutes into his testimony. “I think we both agree that in the near future—in the next five years—we see no need for the Fed to issue digital currency.”
The reason is simple, he said. The U.S. doesn’t need one. “We have a very sophisticated system,” said Mnuchin.
What the U.S. does need is a real-time electronic payment system, and the Federal Reserve is working on that, he added.
EU needs e-euro
Both the governor of the Bank of France and the European Central Bank (ECB) have a somewhat different perspective. They want a CBDC and they want it soon.
On Dec. 4, Banque de France Governor François Villeroy de Galhau called for a French CBDC to be tested “before the end of the first quarter of 2020.”
This digital currency should be able to morph into an EU-wide “e-euro,” he said. Blockchain might be an ideal tool, at least for the back-end infrastructure, he added.
China has also fast-tracked a CBDC, with strong indications it will launch in 2020.
The ECB said in a recent paper that it believes “the time has come to provide new impetus to European retail payments.” Like Mnuchin, they believe this must be fast, cheap, and secure.
However, the ECB has several other stipulations.
That digital currency must work across the entire 27-member (assuming the U.K. leaves) bloc. It must run out of Europe. And it must, eventually, be able to become a global currency.
The digital currency “should be led by the industry, with support from the public sector where needed,” it said.
Speedy, efficient hand of government
The government should only step in “[i]f industry efforts fall short of developing an innovative and efficient pan-European payment solution.”
In that case, “the social need for it could potentially be met by issuing a CBDC,” the paper added.
However, without actually saying it, the paper cast doubt on the ability of private industry to do that.
It noted that progress had been made in building the “back-end” infrastructure. However, that has not “translated into similar progress at the ‘front end,’ which remains fragmented,” it said.
A privately issued global stablecoin would fit the bill, said the paper. It then threw cold water on the ability of stablecoins to be approved for use anytime soon. They are, it noted, “untested on a large scale and … raise a number of legal, regulatory and oversight risks.”
Before such a stablecoin could go live, “these issues must be addressed through appropriate design and oversight requirements, as well as regulation that is proportionate to the risks,” it said. Beyond that, those regulations must be harmonized to avoid the kind of “regulatory arbitrage” that saw Binance move from China to Japan, and finally to Malta.
That doesn’t sound fast, does it?
Which may be why the paper concluded, “the ECB will continue to analyze CBDC with a view to exploring the benefits of new technologies for European citizens and to be ready to act should the need arise in the future.”
You know, when “the time has come.”