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Bitcoin’s Woes Spark Gov’t Probes And Clear Way For CBDCs

Bitcoin’s Woes Spark Gov’t Probes And Clear Way For CBDCs

May 24, 2021 at 08:34PM
by PYMNTS

You could call it the crypto conundrum: the more volatile the crypto markets get, the more attention they garner from regulators in the U.S. and abroad who are eager to tamp down on this burgeoning asset class. But in doing so, regulators are also unwittingly increasing the likelihood that they’ll end up entering the crypto fray themselves by way of developing — and deploying — their own central bank digital currencies (CBDCs).

To that end, Federal Reserve Chair Jerome Powell signaled last week that he wants more input on CBDCs.

Through a video press release, Powell stated that “as the central bank of the United States, the Federal Reserve is charged with promoting monetary and financial stability and the safety and efficiency of the payment system,” and explained, “In pursuit of these core functions we have been carefully monitoring and adapting to the technological innovations now transforming the world of payments, finance, and banking.”

As has been widely noted, the central bank has been studying the technological and policy implications of launching digital fiat. Powell noted in the Thursday (May 20) commentary that it is “important that any potential CBDC could serve as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks.” Among the near-term efforts: the Fed will look to release a research paper this summer tied to CBDC.

The Boston Fed has been working with MIT to research how a CBDC might be developed. And in an interview with Karen Webster, Jim Cunha, SVP of secure payments and FinTech at the Boston Fed, said that issuing and scaling digital fiat would require interoperability between different central banks’ digital fiats and payments rails. He also said CBDCs can be used to help unbanked and underbanked individuals and families. Details, through an MIT report, are slated to be released in July.

Digital Ruble And Digital Won 

Separately, the Bank of Russia, as reported by Bitcoin.com, is on track to release a prototype of a digital ruble by the end of the year, per commentary from central bank Deputy Governor Olga Skorobogatova.

South Korea, through its central bank, the Bank of Korea, will soon take bids for a technology partner to launch a pilot program for a digital won, Reuters reported on Monday (May 24). Trials for the digital currency are reportedly in the planning stages.

The expanded efforts of these, and other countries, comes as the Bank of International Settlements said earlier in the year that about 86 percent central banks are “actively researching” CBDCs, 60 percent have been experimenting with the technology and 14 percent have been deploying pilot projects.

Earlier in the month, Accenture and SWIFT, the provider of secure financial messaging services, published a joint paper that stated that interoperability is critical in bringing CBDCs to mainstream adoption. As the paper noted, “CBDC-based systems must co-exist and be integrated with other payment systems. Different types of money are used in different payment systems today and these systems interoperate in a flexible way to support the flow of payments and the efficient use of liquidity.”

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