A new interactive tracker from the Atlantic Council, a nonpartisan think tank focused on international affairs, shows that 81 countries are at some stage of development with a central bank digital currency (CBDC), which is up from 35 countries a year ago.
The largest chunk, 32, is in the research phase, while 14 have launched pilots, and 16 are in active development. Five countries — Antigua and Barbuda, Saint Lucia, Saint Kitts, Grenada, and The Bahamas — have already launched digital currencies.
Notably absent from this list of frontrunners is the United States, which has opted for a more cautious approach than other major powers such as China and Russia, which are in the pilot and development stages respectively.
Federal Reserve Chair Jerome Powell testified before Congress earlier this month that "it’s way more important to get it right than it is to do it fast," even as lawmakers peppered him with concerns about remaining competitive in the space.
At the same time, Powell clarified that two white papers are due out this September: one breaking down different policy options with their costs and benefits and another, developed with MIT, providing more technical guidelines on a possible CBDC.
The testimony marked the most extensive comments yet from Powell on the possibility of a CBDC, but some policy advocates maintain that the U.S. is still moving too slowly.
Lagging Behind
"The really important takeaway here is that the U.S., of the four most influential central banks, is the laggard, and that's not a good position for the world's financial superpower to be in," said Josh Lipsky, director of the Atlantic Council's GeoEconomics Center, which looks at the intersection of international affairs, finance and economic issues.
Formerly a senior advisor for the IMF and speechwriter for Christine Lagarde back when she led the agency, Lipsky has been a long-time proponent of CBDCs. With the tracker, he said, the goal is to provide a clearer picture of global adoption while also pushing U.S. policymakers to pick up the pace.
Lipsky stressed that the U.S. doesn't necessarily need to rush out a coin, but it should be signaling to other countries its priorities for what a CBDC should look like, especially when it comes to sensitive issues such as security and anonymity.
Groups like the G7, G20, and the Bank of International Settlements have already begun the work of sharing best practices and setting standards for CBDCs, but the U.S. so far has been unable to bring anything concrete to these discussions.
The upcoming working papers from the Fed could serve that role, according to Lipsky, with the more technical paper coming from the Boston Fed as the real one to watch.
"Let's get this white paper out there," he said. "Let's show people what a digital currency could look like that protects anonymity and has cybersecurity involved. Let's just get that out there, even if it's not perfect, and start working through the G20 and saying 'this is how we think this could be designed.'"
Lipsky stressed that the onus shouldn't just be on the Fed, however. Powell has made it clear that he believes the Federal Reserve Act does not give him the power to launch a digital currency, implying that Congress will have to step up with new legislation.
"I think Congress has a real role to play in legislation," he said.
Setting Standards
At stake is the opportunity to determine what kind of global standards will inform the creation of digital currencies.
"In the world of finance and financial regulation, the first mover has a distinct advantage in setting the international operating environment," Julia Friedlander, deputy director of the GeoEconomics Center, testified before Congress on Tuesday. "Because of the size of dollar-based commercial, financial, and debt markets, the U.S. naturally serves as a force-multiplier for international standard-setting."
China's head-start is a particularly hot-button issue for lawmakers who are increasingly reverting to Cold War-style rhetoric around global competition.
In 2020, China piloted its digital currency in four cities. Then it expanded to 28 cities later that year, and as of this summer, the People’s Bank of China said that nearly 21 million personal and 3.5 million corporate wallets were open. The central bank said it's aiming for broad circulation of its CBDC in 2022. It also plans to allow foreign visitors to use digital yuan during the upcoming Winter Olympics.
If China is successful, its approach to digital currencies could serve as the international model, supplanting the role of the dollar globally.
"Over time, countries may develop new cross-border systems to settle transactions instantaneously," Friedlander testified. "The dollar would then be seen as a technological laggard, opening the door to currency rivals."
Despite these potential political consequences, Lipsky said it was important to not see the race for a CBDC as simply a faceoff between China and the U.S., but rather a technological transformation with stakeholders across the globe.
"This often gets framed in a U.S. versus China context," he said. "What we show is that 81 countries are doing this, and they have a variety of motivations."
Those reasons range from making fiscal stimulus easier through digital payments to maintaining monetary sovereignty in the face of ballooning private cryptocurrencies.
The Bahamas, for instance, released its "Sand Dollar'' with the explicit goal of combating illicit finance, while also expanding financial inclusion on the island.
"It's a mistake to think that because China might misuse a CBDC for data surveillance purposes that therefore all CBDCs are bad," he said. "You have to look at the technology. It's just a tool. It can be used for good. It can be used for ill, but you can't dismiss it because it is potentially revolutionary and could help a lot of people."
