Atlantic Council Director Sees 'Splintering' Financial System if US Falls Behind on CBDCs
Josh Lipsky, senior director of the Atlantic Council, joined “First Mover” to discuss how a U.S. CBDC could be a trendsetter for the rest of the world, once it gets beyond the research stage.
The U.S. dollar’s place as the world’s dominant reserve currency, while not in immediate danger, could eventually change as countries continue to explore central bank digital currencies (CBDC), according to one financial institution expert.
“While the dollar is not in any risk at the moment, over a long time period, three [to] five [to] seven years, there could be a fracturing of the international financial system,” Josh Lipsky, senior director of the Atlantic Council GeoEconomics Center, said during an appearance on CoinDesk TV’s “First Mover.”
Lipsky added that doesn’t necessarily mean another currency will replace the greenback, but it does suggest that a “real splintering of different means of transactions, not just dollar-based,” could follow.
According to the think tank, 105 countries representing over 95% of global GDP are exploring creating CBDCs. As the name suggests, CBDCs are digitally native, central bank-issued currencies that operate primarily via the use of blockchain technology.
Last week, a research project comprising an estimated 20 Asian-based commercial banks across four countries, successfully settled upwards of $22 million in foreign-exchange transactions, according to the Bank for International Settlements (IBS).
“We haven’t seen that before,” Lipsky said. “We’ve seen the technology tested. We’ve seen the hypothetical settlement, but we haven’t seen actual money in a serious amount flowing between countries.”
Lipsky said it represents “significant developments” in the world of CBDCs. The U.S., however, is still in the research phase, as are other notable players, including the U.K. and Mexico, according to Lipsky.
In the next two years, the U.S. could build a CBDC model that is “cyber secure, protects privacy and delivers near instant settlement,” Lipsky said, and could even be the “international standard setter,” prompting other countries to follow suit.
“We’re the dollar. We’re the issuer of the world reserve currency and other countries that are in a further state of CBDC development would say to themselves, ‘Well, we should probably be aligned with what the U.S. and what the ECB [European Central Bank] is doing,’” Lipsky said.
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