US explores central bank digital currency to preserve dollar’s reserve status

digital currency
digital currency

The U.S. is studying options for adopting a retail or wholesale central bank digital currency, Under Secretary of Treasury Nellie Liang said in a speech Wednesday.

Liang said a consortium of government agencies will meet regularly in the coming months to discuss whether to adopt a central bank digital currency, or CBDC.

« We are thinking about whether a U.S. CBDC, to the extent it has functionality that traditional forms of central bank money lack, could help to preserve the dollar’s global role, » Liang said in a speech at the Atlantic Council on Wednesday. « We are also thinking about whether a U.S. CBDC could help reduce undesirable frictions in cross-border payments or other activities. »

The U.S. dollar is considered the world’s « reserve currency, » accounting for well over half of the world’s central bank reserves and playing a key role in settling international transactions.

Liang’s comments mark the most comprehensive insight and reveal the administration’s latest thinking on a CBDC. The remarks also come at the one-year mark since President Biden issued an executive order directing agencies to study a central bank digital currency, and come up with a government-wide approach to regulating digital assets.

U.S. policymakers are continuing to deliberate about whether to have a CBDC, and, if so, what form it would take.

According to Liang, a CBDC would be legal tender, convertible one-for-one into other forms of central bank money — reserve balances or paper currency — and would clear and settle nearly instantly. A U.S. CBDC would also need to both protect the privacy of users and minimize the risk of illicit financial transactions.

Liang said deliberations will take « some time to complete, » but that a group of government agencies, including the Treasury, Fed, and White House offices will meet regularly in the coming months and offer interim updates to the public.