Many countries are far ahead of the United States in developing central bank digital currencies (CBDC), and that may be for good reason, according to one financial institutions expert.
Josh Lipsky, senior director at think tank Atlantic Council’s GeoEconomics Center, told CoinDesk TV’s “First Mover” that of the 105 countries exploring implementing a CBDC, 50 are serious about it, meaning “they’re in the development, pilot or launch [phase], beyond the research stage.”
“That means they're very likely to actually go through with this,” Lipsky said.
Lipsky, who previously served as an adviser at the International Monetary Fund (IMF), said those investigating the use of a CBDC includes South Korea, Japan and India, in addition to China, which currently leads the way in pilot testing efforts. China is said to have about 250 million registered digital wallets using its digital yuan.
However, the U.S., the U.K. and Mexico are “still in the research stage” while other countries like Argentina are outliers, meaning they are “nowhere in the CBDC progress,” he added.
CBDCs are considered to be the digital form of a country’s fiat currency, which is administered by a central bank. Rather than printing physical cash, a central bank issues a digital currency that is backed by the government.
Lipsky noted the U.S. may have some justification for dragging its feet.
The U.S. has “moved more slowly because of privacy concerns,” he said. “And that’s a very legitimate concern.”
In the long run, however, delaying could put the U.S. at a disadvantage. “Now we see competitors from an economic space moving and finding solutions on those privacy answers, and the U.S. is still missing from the table a little bit,” he said.
Lipsky said he frequently talks to central bankers from around the world, and they are asking, “Where’s the U.S. model? Where’s the U.S. in standard setting?”
“I think that’s missing right now,” Lipsky said. “The U.S. could be doing more.”
Lipsky said that since Russia’s invasion of Ukraine there has been increased interest in wholesale bank-to-bank CBDCs as a result of the issues raised from banking sanctions.
Wholesale CBDCs give central banks more room to implement regulatory oversight, including know-your-customer (KYC) and anti-money laundering (AML) regulations.
“If you think countries are going to look to alternatives to the current financial system, alternatives around SWIFT, alternatives to bank-to-bank dollar transactions, wholesale CBDCs actually open up some avenues for them,” Lipsky said.
Over the next five years, countries could be looking to China for their own CBDC infrastructure, Lipsky said. But that does not mean that countries are looking to use the country’s CBDC infrastructure entirely. He did not agree with former Commodity Futures Trading Commission (CFTC) chief J. Christopher Giancarlo’s comments that one-third of the world’s CBDC infrastructure could eventually be built and controlled by China.
According to Lipsky, China’s CBDC motivation is more closely aligned with its domestic affairs than its international ones, including the ability to monitor via surveillance what citizens are doing in real time.
And even if China provided the technology, it would not be providing the CBDC itself, Lipsky predicted.
“I’m not sure anyone has thought through how these are going to interact cross-border,” Lipsky said. “China could say, ‘Yes, use our technology. But by the way, if you're looking for a streamlined CBDC model, we can help you there, too.’”
The different iterations of CBDC infrastructure could also create challenges. Of those 105 countries considering CBDCs, Lipsky said, no two are alike, and that could carry over into digital currency cross-border transactions. “This is a real interoperability problem.”
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.
Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.