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A digital currency from a US central bank could deposit risk-stable coins like Circle’s USDC and Tether’s USDT.
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The White House said Friday that several agencies — including the Treasury Department and the Federal Reserve — should continue research to develop an official U.S. digital dollar.
That would be a direct threat to stablecoins like those issued by Circle Internet Financial and Tether Holdings, but the report’s details show that these companies don’t yet have much to fear.
President Joe Biden in March signed an executive order calling on dozens of agencies to study various facets of the crypto industry and come back with policy recommendations. Included in the request were reports from the White House Office of Science Policy and the Treasury Department on the possible creation of a U.S. central bank digital currency by the Fed, which would essentially be a digital form of a banknote.
A US CBDC can deposit risk-stable coins such as Circles USDC and Tethers USDT. These cryptocurrencies, which together have a market capitalization of $117 billion, seek to maintain a stable value of one dollar by holding in reserves a corresponding amount of dollar-backed assets.
Currently, stablecoins are mostly used by investors when buying other cryptocurrencies such as Bitcoin, but some stablecoin companies dream of becoming common in daily transactions instead of cash.
Circuit leaders have lobbied furiously against the US issuing a CBDC, as have banks, fearing that a CBDC could cause consumers to withdraw bank deposits in favor of digital wallets. Republican lawmakers have also argued that digital dollars should be left to the private sector, rather than the Fed, to develop.
“The policy goals identified by the White House for a CBDC are already being met by private sector innovations like the USDC,” Circle Chief Strategy Officer Dante Disparte said in a statement to Barron’s.
Disparte noted that “the review process alone could take years” and that the financial report said that private stablecoins could eventually coexist with a CBDC.
Tether did not respond to a request for comment.
In an ideal world for stablecoin issuers, the Fed and Treasury would scrap the project altogether. Friday’s reports make it clear that is not going to happen. Instead, the Biden administration urged the agencies to go full throttle in answering the thousands of questions that must be resolved before the United States can potentially release one.
The report “is a clear indication that they are certainly moving forward with developing a CBDC,” said Josh Lipsky, senior director of the Atlantic Council GeoEconomics Center. Actually pulling the trigger, Lipsky notes, will likely end up being a matter for Congress.
The Atlantic Council’s research on CBDCs being developed in other countries suggests that a U.S. CBDC likely won’t see widespread use until 2027 at the earliest, assuming Congress decided to move forward, Lipsky says, although a smaller pilot could happen earlier. Another big question will be whether the Fed and Congress want to make a CBDC available to US consumers broadly or more narrowly to banks for wholesale use, which could happen much more quickly.
Regardless of the timeline, the Fed and the Treasury Department’s work will continue to be important to other countries that want to ensure that their own digital currencies meet the standards that the U.S. financial system will eventually require.
The Justice Department is expected to release its own report soon, focused on the circumstances under which the Fed would need authorizing legislation to move forward with issuing a token. It’s something Fed officials themselves have suggested they need, meaning issuing a CBDC will depend on winning over skeptical Republicans.
But whatever the report says, while the Fed and Treasury may be barreling along to create the technical underpinnings of a digital dollar, it will be years before Americans actually see one.
Write to Joe Light at [email protected]
