What Will Come From the CBDC Arms Race? 

Central banks around the world are in an arms race to create and launch their own Central Bank Digitial Currencies (CBDC) into mass adoption. 

With the majority of the world’s central banks already considering launching a CBDC, 2022 was mostly testing. However, the movements by nations across the world to make CBDCs a reality is picking up speed and will become a major priority in 2023 – especially as the race to set a global CBDC standard is in sight. Additionally, commercial banks are increasingly interested in the space and will begin (or continue) to partner with central banks and software vendors to ensure success and mass adoption. (and ultimately, mass enforcement)

China’s digital yuan is far ahead of the rest, however many countries are making headway – with a 2023 rollout being a possibility. The Bank of Japan is piloting a rollout with major banks in early 2023. Turkey announced it would launch its CBDC next year, while the ECB intends to start work to develop a rulebook in early 2023 on rolling out a digital euro. The money and payments world is clearly on a path of adopting blockchain more broadly in 2023, with SWIFT even jumping on board.

What About the US Fed? 

Where is the US Fed with a CBDC? A recent post on their site read: “While the Federal Reserve has made no decisions on whether to pursue or implement a central bank digital currency, or CBDC, we have been exploring the potential benefits and risks of CBDCs from a variety of angles, including through technological research and experimentation. Our key focus is on whether and how a CBDC could improve on an already safe and efficient U.S. domestic payments system.

CBDC is generally defined as a digital liability of a central bank that is widely available to the general public. Today in the United States, Federal Reserve notes (i.e., physical currency) are the only type of central bank money available to the general public. Like existing forms of money, a CBDC would enable the general public to make digital payments. As a liability of the Federal Reserve, however, a CBDC would be the safest digital asset available to the general public, with no associated credit or liquidity risk.”

The Fed might be forestalling the release of a CBDC with their “FedNow” service. 

The FedNow instant payment service will be ready to launch between May and July of 2023, and the technical testing phase of the service will start mid-September.

The new service will provide service 24/7 and will provide immediate availability of funds.

“The FedNow Service will transform the way everyday payments are made throughout the economy, bringing substantial gains to households and businesses through the ability to send instant payments at any time on any day, and the funds being immediately available to recipients to make other payments or manage cash flow efficiently,” according to VIce Chair Lael Brainard.

It looks like the US Fed is taking a very cautious approach to CBDCs by first offering their own version of VENMO.