Proponents of a CBDC point to a future in which electronic payments between individuals or businesses could be instantaneous and permanent, with no need for a bank to serve as an intermediary, and in which even individuals without access to a bank account could easily receive secure electronic payments.
Doubters express multiple worries, including privacy concerns
, pointing out that the system could give the federal government access to transactions that individuals would prefer to make in private. There are also economic concerns, such as the possibility that a digital dollar circulating freely around the globe could displace national currencies issued by smaller countries’ central banks.
Whether it’s a good thing or not, the possibility of national governments issuing digital versions of their own currencies is gaining traction globally, with China leading the way on a digitized version of the yuan that is already in limited circulation.
David Treat, a senior executive with Accenture who leads the consulting firm’s efforts in the area of digital currencies, said that his company has worked with a majority of the central banks in G-20 countries, and he estimates that a quarter of them will have some sort of digital currency in circulation by 2024.
With CBDCs seemingly an inevitable part of the world’s financial future, here are some of the pros and cons of the new technology being applied to the world’s most widely used currency.
Pro: low volatility
Unlike other digital currencies, such as Bitcoin, a digital U.S. dollar would be worth exactly that: one dollar. The digital “token” held by the owner is backed and guaranteed by the Federal Reserve.
“There is no question as to its value,” said Treat. “Whether it's the dollar in your wallet, the dollar in your savings account, or the central bank digital currency version of $1 in your digital wallet, all of them always equals $1.”
While normal digital transactions might seem instantaneous, there is a vast web of the digital infrastructure underpinning even a simple Venmo money transfer, requiring multiple exchanges of information between financial services providers confirming that the person making the payment has the resources to cover it and that the recipient is equipped to receive it. A breakdown in any part of the system can result in delayed payment confirmation.
By contrast, said Treat, a digital dollar would operate like cash, in that all the information needed to verify that a transaction has taken place exists within the token stored in a digital wallet. When a payment is made, that information is encoded in the token itself, making that information a permanent element of the token.