Home Digital Currencies US project to kick off CBDC tests

US project to kick off CBDC tests

'Time for a digital dollar?': the Digital Dollar Project, backed by Accenture, is seeking to 'complement' the Fed's own CBDC explorations | Credit: TheDigitalWay; Pixabay

A private-sector-backed research and advocacy collaboration known as the Digital Dollar Project (DDP) is to launch at least five pilot programmes over the next year in a bid to inform the design of a potential US central bank digital currency (CBDC).

The DDP is a link-up between Accenture and the Digital Dollar Foundation, a non-profit organisation, to encourage research and public discussion on the potential advantages of a US CBDC (or ‘digital dollar’).

Its pilots will involve ‘interested stakeholders and DDP participants to measure the value of and inform the future design of’ a potential ‘digital dollar’, according to an Accenture-issued press release.

The pilots, for which the consultancy firm is providing the first phase of funding, will examine technical and functional requirements; assess benefits and outstanding challenges; test applications and approaches; and consider potential use cases for both wholesale and retail use – a wholesale CBDC is a central bank-issued digital currency for interbank use, as differentiated from a retail (or general purpose) CBDC, which is for the general public.

Researchers will also seek to ‘evaluate and catalogue emerging standards and policies – including with respect to global interoperability and the preservation of key norms and consumer protections – for a US CBDC’.

Aiming to ‘complement’ the Fed’s research

Most central banks worldwide are researching or experimenting with CBDCs but few have made definite commitments to introduce them.

Federal Reserve chairman Jerome Powell told an online audience at the Bank for International Settlements (BIS) Innovation Summit 2021 six weeks ago that the Fed was “doing a broad programme of experimentation and investigation about whether to issue a CBDC and, if so, how would we resolve the many design choices to be made in light of [the] potential benefits and risks”.

Powell said that “way more than half” of the Fed’s 12 regional banks currently have “active work” on CBDC. As an example, the Boston Fed has a multi-year partnership with the MIT (Massachusetts Institute of Technology) Digital Currency Initiative to build and test a hypothetical CBDC.

But he also said there is “no need to rush” CBDC explorations and that “the real threshold question for us [the Fed] is, does the public want or need a new digital form of central bank money to complement what is already a highly efficient, reliable and innovative payments arena and system.”

The DDP says its efforts aim to ‘complement’ other CBDC work, such as the Fed’s MIT collaboration.

There are also political questions. “To move forward on this [CBDC], we would need buy-in from Congress, from the administration, from broad elements of the public,” Powell said at the BIS conference. He said a legal way forward would “ideally come in the form of an authorising law rather than us trying to interpret our law to enable this” while, on the latter point, he said the Fed was yet to “really begin” public engagement.

‘US doesn’t need to be first’

Three of the five pilots are set to be announced within the next two months. The DDP says it will ‘make its CBDC test ground transparent and accessible to all stakeholders, public and private, and serve as a neutral platform to explore the future of US currency’.

“Central bank digital currencies will play an important role in how we modernise our financial systems – increasing access to and inclusion within them while also providing a valuable innovation frontier for new products and services in conjunction with other key innovations such as digital identity,” said David Treat, a senior managing director at Accenture who leads the company’s blockchain and multi-party systems practice globally.

“The US doesn’t need to be first to the central bank digital currency, but it does need to be a leader in setting standards for the digital future of money, which is why our pilot testing collaboration with Accenture and other partners is so critical,” said Digital Dollar Foundation co-founder J Christopher Giancarlo, a former chairman of the US Commodity Futures Trading Commission. “We need to better understand how to balance the complex issues of a CBDC and how to incorporate key societal values, like privacy rights, financial inclusion and rule of law. Together, this project team will conduct research, experiment and develop thought leadership in an open manner in the interest of informing public policy.”

Global Government Fintech two weeks ago (22 April) organised an international webinar, in partnership with Amazon Web Services Institute (AWSI), entitled ‘Delivering Central Bank Digital Currencies (CBDCs): Exploring the Technology Challenge’.

A panel at the event addressed topics including whether the available technologies are capable of rising to the delivery challenge and how ambitions for enhanced features such as offline use impact on the technology questions. Treat’s Accenture colleague John Velissarios was a member of the four-strong panel, describing interest in CBDC as “intensifying” and having “pivoted” from wholesale CBDCs to retail CBDCs.