Around 100 countries are currently exploring Central Bank Digital Currencies CBDCs, which represent 95 per cent of the global economy.
CBDCs are the digital version of an official currency. A sovereign guarantee is provided by a CBDC that may not be backed by the technology of the digital digital currency, but it is not a guarantee that will not be provided by it. Like Cryptocurrencies, a CBDC is expected to facilitate trust, safety, and liquidity.
The Asia Pacific region has been the frontrunners in the CBDC projects, according to a recent Deloitte report. It noted that seven out of the top 10 CBDC projects are being conducted in the APAC region.
In 2021, China became the first major economy to launch a digital currency, while a number of developing countries are in various stages of experimentation.
As much as CBDC adoption is the story of developing countries gaining the first-mover advantage, it is also the story of one economic powerhouse missing the United States.
The US came out with its first comprehensive framework on digital assets read CBDCs in September 2022.
The Federal Reserve should continue its ongoing research, experimentation and evaluation, while analysing the benefits and downsides of a US CBDC. On November 15, the New York Fed announced the launch of a proof-of- concept pilot project to see the feasibility of a CBDC, just days after it released the results of its wholesale CBDC research titled Project Cedar.
The US government's attempt with CBDCs came a fortnight after India's central bank began its pilot in the government securities market.
India is expected to launch a pilot retail version of CBDC in December, while the US is still in the research phase and could take years to develop its CBDC, according to the US Treasury Department.
The US is lagging in the development of CBDC, which is surprising given its pre-eminence as a technology innovator. Two US researchers laid the theoretical framework for the technology Scott Stornetta and Stuart Haber. Satoshi Nakamoto, the presumed inventor of the digital ledger, referred to them in the first whitepaper.
The innovator's dilemma, which refers to the US being left behind due to a lack of investments in disruptive technologies, could be one of the factors for the US falling behind in the CBDC race.
The incumbent is facing a hard choice: whether to fight or adopt against these disruptive technologies, and if adopting how to do so effectively, according to a 2021 Brookings article.
The US cautious approach towards CBDCs is confounding if one factor is China's looming threat dominating the financial system.
According to a report in the TIME magazine, developments in the digital currency space will not only affect the financial world but also boost the geopolitical ambitions of countries.
With China and the US competing for a position of superpower, digital currencies are expected to play a major role in defining 21st Century trade and finance.
According to reports, China wants to use its CBDC digital yuan for global trade payments. China's move could undermine the US dollar's international dominance.
If the US launches its own CBDC, it is expected to revamp the global economic system. Anmol Chawla, the co-founder of Taxcryp, said that CBDC would help the US maintain its economic dominance.
He said that the US wants to keep the dollar as the world's reserve currency and ward off threats from countries like China.
Some experts back the US approach to CBDCs, arguing that the threats of hacking and volatility need to be investigated before a CBDC launch.