Hot Topics in International Trade – June 2022 – Implications of a U.S. Central Bank Digital Currency | Braumiller Law Group, PLLC


[co author: Justin Holbein ]

In a recent article (, I provided an overview of the many reports required by the Executive Order on Security responsible development of digital Assets issued on March 9, 2022. A major objective of this federal government effort is to assess and analyze the digital asset sector to determine whether it is advisable to develop a central bank digital currency (CBDC). This article provides an overview of the issues surrounding CBDCs in a Q&A format to provide perspective for analysis of the many government reports due in September, October and through the end of this year. These reports will examine a CBDC that protects consumers, investors, businesses and innovative organizations using blockchain technology, while promoting financial stability, curbing illicit finance, leading to enhanced international cooperation around digital assets.

What are CBDCs?

The Federal Reserve is at the center of analyzing and developing any new laws and regulations for any US CBDC that would be the digital equivalent of a paper dollar but only exist on balance sheets and accounts and blockchain wallets.

A CBDC is a digital form of central bank money widely available to the general public. “Central bank money” means money that is a liability of the central bank. In the United States, there are currently two types of central bank money: physical currency issued by the Federal Reserve and digital balances held by commercial banks with the Federal Reserve. While Americans have long held money primarily in digital form – for example in bank accounts, payment apps, or through online transactions – a CBDC would be different from existing digital currency available to the general public because a CBDC would be a liability of the Federal Reserve, not a commercial bank. (

Have any countries issued them?

“As of March 2022, 87 countries are considering issuing a CDBC, according to the Atlantic Council, an independent organization based in Washington, DC. Of these, 9 countries – Bahamas, Nigeria and 7 Eastern Caribbean Union countries – have already launched a centrally governed digital currency. About 2 years ago, in May 2020, only 35 countries were considering issuing a CBDC. (; see also:

As the reference above shows, the efforts of the United States government to analyze CBDCs could certainly lead to legislation and possible legal and regulatory requirements. If this effort is successful, the digital asset and cryptocurrency industry will finally have a framework that can lead to substantial new investment and participation in the mainstream economy. The lack of regulation, scams, uncertainty, underdeveloped infrastructure, and dearth of open source code in the industry can be overcome fairly quickly, and a new era of heightened security and adoption could dramatically accelerate progress already. made.

Why use them?

Key benefits for countries to issue CBDCs include:

  • Money laundering could be easier to identify
  • Simplified and efficient cross-border payments, removing a major supply chain friction
  • Financial inclusion for people without a bank account to participate in transactions
  • Eliminate the risk of commercial bank collapse
  • Simplified monitoring, data analysis and understanding of financial flows
  • Manage the risks of creating private money (cryptocurrencies)

The main difference for individuals between a CBDC and existing digital and fiat dollars is that no one would need to hold CBDC assets in a commercial bank account. This would open up the economy to much greater participation by unbanked or disenfranchised people. At the same time, digital ledgers on the blockchain(s) would simplify and speed up transactions and settlement times, adding major efficiencies to the payment system. (See:

The main reason people would prefer CBDC over a bank account is that CBDC is not at risk when banks fail. Removing this risk would benefit both individuals and the economy. Also, transferring money between banks and national borders becomes much simpler. The various banking systems would not need to interact with each other to facilitate these payments. All that is required is a file update at the central bank. This simplicity makes the process faster and cheaper. (

Are there any potential issues with adopting CBDCs?

There are also significant potential issues for regulation to address:

  • Each country could have its own CBDC, and each government’s total control of the currency could lead to significantly different usage restrictions.
  • Each transaction would be transparent to any entity that can read the blockchain, and increased access to transactional big data could lead to privacy breaches.
  • The transition to digital currency could be slow for many members of the population, although the user experience is likely to be similar to using a credit or debit card.
  • Commercial banks could lose much of their retail business, impacting share prices and earnings for many small local banks as well as large retail-dependent banks.

A recent pilot program under the auspices of the Bank for International Settlements found that a multi-CBDC platform could be developed, but some harmonization or cooperation between central banks would be required to maximize efficiency of use. in the real world. ( Such harmonization and common approaches can be difficult to negotiate. In all likelihood, multilateral agreements will be required, taking years to negotiate, ratify and enter into force between signatory nations over a long period of time.

The Federal Reserve recently conducted a study, Currency and Payments: The US Dollar in the Age of Digital Transformation, January 2022, ( As part of this study, the Fed solicited public comment on twenty-two questions regarding the potential adoption of a US CBDC. Hundreds of responses are posted online, but sifting through them and extracting the really valuable contributions from the laudatory or derisory remarks with little substantive bearing on the issues will be an arduous process. ( This is also often the case with the development of notice-and-comment style rules. Unsurprisingly, some larger players in the cryptocurrency industry are also contributing their opinions in hopes of shaping legislation and regulation.

Can we strike a balance between centrally controlled financial institutions and decentralization?

One of the major debates surrounding innovation involving blockchain-based systems is whether the decentralized activity that is at the heart of distributed ledger technology (DLT) can thrive in a financial system based on heavily regulated and authorized by the government? Innovators are very concerned that the government will step in and essentially undo the more innovative aspects of cryptocurrency by issuing a CBDC that will remain centrally controlled, provide the means for greater government intrusion into the financial affairs of all people using the CBDC, and crowding out all private money represented by cryptocurrencies.

The current situation with cryptocurrencies has clearly been plagued by high levels of fraud, volatile price fluctuations for supposedly stable investments, and uncertainty about the use, adoption and sustainability of the crypto economy. However, the promise of decentralized cooperation, improved and simplified financial transactions, and the inclusion of many currently disenfranchised people from the banking system make government reporting required by the recent decree even more important in charting the landscape of potential regulation leading to the adoption of a CBDC. It is also essential for civil society, big business and other interested actors to come up with responsible and sensible approaches to implementation that will protect consumers, investors, businesses, non-profit organizations and private individuals from their rights.

A particularly important consideration for the government’s analytical effort is to manage the impact of a CBDC (public cryptocurrency) on stablecoins and existing forms of private cryptocurrency. Private money was created in many ways in the United States, usually in response to the shortcomings of public money issued by the federal government. Once the deficiencies were corrected, private money repeatedly disappeared from the scene until the next currency failure occurred. (See: and future.aspx#:~:text=Coal%20mining%20and%20lumber%20companies,served%20by%20government%2Dprovided%20money.) As a result, many cryptocurrency providers and exchanges fear that the public CBDC will crowds out private forms of cryptocurrency. However, many private lenders are in action today and commercial banks are also worried about losing so much retail business to CBDCs and crypto wallets rather than bank accounts that their business is in danger of collapsing. (See:

Switching the needle between these extreme outcomes will take skill, but it is within the capacity of all the people and institutions involved to find an approach or approaches to regulation that will eventually work. Imagine instant tax refunds within hours of deposit deposited into your account, as well as rebates and other incentives for using the CBDC’s “Federal Coin.” What about instant availability of all funds rather than verification delays as is often the case now, and many other changes that will positively impact users, holders, regulators and innovators of the new currency. We have the ability to work together and shape legislation and regulation that will truly make as big a difference to society and the economy as the Internet has made since 1990. I look forward to working to bring about these changes.


Comments are closed.