US central bank digital currency faces congressional scrutiny

The design of a potential U.S. central bank digital currency (CBDC) remains a topic of debate, as made clear at a Tuesday hearing of the U.S. House Committee on Financial Services Task Force on Financial Technology . Witnesses at the virtual hearing discussed the need for a CBDC and noted the automation possibilities that might accompany a digital dollar issued by the Federal Reserve. Speaking at the hearing were fintech executives Carmelle Cadet, founder and CEO of software provider EMTECH, and Jonathan Dharmapalan, founder and CEO of security technology solution provider eCurrency. [caption id="attachment_217120" align="alignright" width="300"] Image via Pexels.[/caption] In testimony at Tuesday’s House hearing, Cadet noted that a “[CBDC digital cash wallet can be available with various integration models — API or smart contract or node level — available to fintechs and banks in a two-tier system, and the fintechs and banks providing the distribution service making CBDC available. A CBDC requires blockchain technology, automating the role of the intermediary, such as a bank, Cadet told Bank Automation News . “With CBDC, you could hold it in digital form without a bank account, just like you do with paper cash,” she noted. Her fintech, EMTECH, produces cloud-based software for central banks, automating processes and data flows via an open banking architecture. It remains unclear whether the Fed would offer CBDC directly to consumers or through financial institutions . Cadet told BAN that the Fed should “allow both to ensure true inclusion, and the user should have the choice.” She added that consumer habits and fears” are more of a stumbling block to establishing a CBDC than automation itself. Dharmapalan told the House panel Tuesday that a U.S. CBDC could be achieved through existing technology and infrastructures, or could also use newer technology, such as distributed ledgers, or a combination. “CBDC arrangements may also allow or accelerate the entry of new providers, such as Big Tech and fintech, into payment or other financial services. Incumbent firms that are unable or unwilling to embrace or develop new capabilities may experience negative impacts as new entrants emerge. Understanding these dynamics will inform design choices and help address questions of CBDC design, interoperability, market structure, and market adoption.” The U.S. would not be the first country to launch its own digital currency. Ernest Addison, governor of the Central Bank of Ghana , announced June 2 that the bank is in the “advanced stages” of launching a CBDC, which currently uses EMTECH’s “Modern Central Bank Sandbox” platform. In February, EMTECH also partnered with WiPay Caribbean, an online payments network, to pilot a CBDC for participating Caribbean Central Banks. In addition, EMTECH worked on the pilot for t he Central Bank of the Bahamas’ Sand Dollar, which launched in October. The Sand Dollar is the world’s first central bank digital dollar. Political pressure is building for a Federal Reserve digital dollar. This week’s hearing follows on the heels of last week’s Senate hearing focused on a U.S. CBDC. Federal Reserve Chairman Jerome Powell has previously indicated a need for further study of such a currency, particularly regarding how it would fit into the current U.S. banking system. The Fed plans to release a discussion paper exploring the possible issuance of Federal Reserve digital currency later this summer.

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