The United States might not be keen on central bank digital currencies (CBDCs), but places like the European Union are pushing ahead with their development. Even after the recent ban by former President Trump, there are solid reasons for this.
On January 23, Trump signed an executive order that officially prohibits the creation and use of CBDCs in the U.S. Many in the crypto community celebrated this move. However, experts believe it could have wider implications for countries looking to develop their own CBDCs, both retail and wholesale.
Understanding CBDCs
CBDCs are digital currencies issued by central banks. They aim to make payment systems more efficient and inclusive. Retail CBDCs are meant for everyday consumers, while wholesale CBDCs focus on interbank payments and securities transactions. According to Yifan He, a CBDC analyst and founder of the Chinese blockchain company Red Date Technology, Trump's ban will have a significant impact on any retail CBDC projects in the next four years.
He expressed doubt about the feasibility of creating a true retail CBDC in the next decade, pointing out several technical challenges and a lack of workable solutions.
While the U.S. ban may slow down retail CBDC initiatives, the outlook for wholesale CBDCs seems to be improving. Lambis Dionysopoulos, a researcher at the EU Blockchain Observatory and Forum, noted that wholesale CBDCs are now being taken more seriously. He believes these currencies could provide an alternative to a financial system dominated by the U.S.
Countries like Russia have raised concerns about their dependence on U.S.-led systems. Dionysopoulos remarked that such reliance could mean being cut off from essential services at any moment. He also highlighted that Christine Lagarde, president of the European Central Bank, has emphasized that a CBDC would be crucial for Europe’s autonomy and security.
Given these developments and Trump's focus on trade and tax issues, there’s potential for global wholesale and cross-border CBDC initiatives to grow, especially in countries that the U.S. views unfavorably. However, retail or wholesale CBDCs have limited use in the U.S.
Some industry observers view CBDCs as a flawed idea from the start. Yet, others remain optimistic about their continued development. Tomer Warschauer Nuni from Kima Network stated that countries like China, Israel, Australia, and the EU are committed to advancing CBDCs to enhance their payment systems and strengthen monetary sovereignty.
Nuni added that the EU's focus on the digital euro may intensify as it aims for strategic independence in payments and seeks to reduce reliance on non-European systems. He sees this as a chance to build connections that enable the interoperability of centralized and decentralized financial ecosystems, ensuring that global financial systems remain robust, regardless of regional policies.