Reports that the U.S. Treasury Department is going to recommend that the government build out a central bank digital currency (CBDC) before deciding if it wants or needs one has the potential to spark a major battle with banks.
Banking industry associations of all sizes have come out aggressively against plans for a digital dollar, which they say could gut their core business model by enticing consumers to take deposits out of traditional accounts and keep them in digital dollars, which would cut deeply into the funds banks have available to lend, groups like the Bank Policy Institute have argued.
Read more: Regulators, Banks at Odds Over CBDCs
The Treasury Department’s recommendation will call for the decision to launch a CBDC to hinge on whether doing so is in the “national interest.”
See more: Bank Battle Looms if Treasury Throws Weight Behind Digital Dollar
And while that standard is hardly a revelation — what other reason would there be? — by suggesting that the digital dollar is being developed before the decision is made, there’s an argument to be made that the Treasury is formulating a de facto recommendation in favor of a CBDC.
Or at least pushing the needle a lot closer to yes.
The report came a day after Federal Reserve Chairman Jerome Powell chided Congress for failing to pass stablecoin regulations. The privately-issued, dollar-pegged cryptocurrencies are widely considered a threat to national currencies and are a prime driver of the global push toward CBDCs.
Read more: Fed’s Powell on Stablecoins: Money Isn’t ‘Just Another Consumer Product’
Rethinking the Digital Euro
A digital euro must do more than simply recreate the way cash and cards are used today, an official at the European Commission said last week.
The pushback came after the European Central Bank’s (ECB’s) digital euro program manager, Evelien Witlox, said it had “singled out … three use cases” form the initial digital euro launch — peer-to-peer (P2P) payments, consumer-to-business (C2B) payments and payments to or by governments.
Jan Ceyssens, head of the European Commission’s digital finance unit, said a “digital euro needs to meet new payment needs,” CoinDesk reported. It should also be able to “cater” to the needs of Web3 users.
That must be a bigger priority, said Jonas Gross, chairman of the Digital Euro Association, the report stated.
“A digital euro needs to have clear advantages and use cases,” said Gross, per the report. “It’s not sufficient from my perspective to say it’s used for peer-to-peer payments [or] for eCommerce payments … it has to do something better than currently existing payment methods.”
That likely means preparing for decentralized finance (DeFi) to become more mainstream and incorporating the capabilities of smart contracts into the digital euro’s design.
Ripple Teases CBDC Announcements
Hot on the heels of its announcement that it joined a new Digital Dollar Project (DDP) sandbox for testing CBDC technology, cross-border payments firm Ripple has new announcements about the use of private versions of its XRP ledger in CBDC programs, an advisor said on Twitter last week.
Antony Welfare, Ripple’s senior adviser on CBDCs, tweeted the teaser Tuesday (Sept. 6).
Thanks @sentosumosaba for the mention – make sure you follow me for more CBDC announcements in the next few weeks 👌👌👌
— Antony Welfare (@AntonyWelfare) September 6, 2022
Ripple’s DDP involvement was announced on Sept. 1. The company’s CBDC platform is built on a private ledger technology based on Ripple’s XRP ledger, which is technically not a blockchain but rather uses the digital ledger technology (DLT) that is the foundation of blockchains.
See more: What Is XRP? The Cryptocurrency Making a Ripple in Payments
It’s CBDC Private Ledger launched in March 2021, and it announced pilots in CBDC projects in Palau and the Republic of Bhutan shortly thereafter.
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