National Digital Currencies: The Future of Money? - Belfer Center (Harvard University)

National Digital Currencies: The Future of Money?

Tomorrow’s money will live in your smartphone, not your wallet. Spurred by the potential to modernize domestic payments systems or to take a leading role in updating the global payments infrastructure, nations around the globe are exploring whether to issue a central bank digital currency (CBDC), the digital form of a country’s fiat currency. China, for example, began piloting a national digital currency last month. The European Central Bank has convened a working group of major economies to coordinate digital currency research and development. The U.S. Federal Reserve said it was in the early stages of researching the digital dollar.  But what are the risks and rewards of this shift? And how might it impact the decades-long dominance of the U.S. dollar? A new project from the Belfer Center’s Economic Diplomacy Initiativeand the Atlantic Council’s Global Business and Economics Center will track the rise of digital currencies around the globe. A color-coded map provides a snapshot of where countries stand – research, development, pilot, and launched – in deploying a CBDC, along with an overview of national efforts. “Digital currencies could substantially reshuffle traditional instruments of economic diplomacy,” said Aditi Kumar, Executive Director of the Belfer Center. “Through this project, we’ll closely monitor digital currency developments and how countries position themselves in the evolving global economic environment.” This financial innovation carries significant legal, economic, and operational risks. National digital currencies could give governments the capability to surveil users – good for tracking criminals, but a concern for the privacy of ordinary citizens. Business models for banks and payments platforms would need to change if people are using government-provided digital cash. And central banks would need to ramp up their operational capabilities to manage a digital currency. “Central banks are not only regulators, as we have seen in the past months, they can drive economic growth and innovation,” said Josh Lipsky, Director of the Atlantic Council’s Global Economics program and a fellow at the Belfer Center’s Economic Diplomacy Initiative. “That spirit of innovation needs to come into play with CBDCs. The evolution of money is happening and it’s important for central banks to help lead the transformation.”

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