By Alma Angotti, Ruba Elbasha, Chris Clarke, Tom Rhoads
In March 2022, President Biden issued Executive Order (EO) 14067 Ensuring Responsible Development of Digital Assets, which placed an urgency on research and development efforts into the potential design and deployment options of a US central bank digital currency (CBDC). The EO details key policy objectives to promote the responsible development of digital assets and CBDCs: protecting US consumers, investors, and businesses; mitigating risks of illicit finance; protecting the US financial system; reinforcing US leadership in the global financial system and financial innovation; and Promote access to safe and affordable financial services.
Implementation of CBDC is being considered across the globe. The Atlantic Council reported that “as of December 2022, 114 countries were exploring the feasibility of a CBDC representing over 95 percent of global gross domestic product.” In line with most western European countries that are in the development stage of CBDC, the Federal Reserve Banks of Boston and of New York announced a pilot to explore the development of a US CBDC. The announcement of these pilots occurred shortly after the FTX cryptocurrency exchange collapse, which may have reduced confidence in the cryptocurrency industry but did not halt these two Federal Reserve Banks’ pilot programs.
There is often confusion between CBDC and cryptocurrency, and, at times, they are used interchangeably. It is important to understand the two different concepts, considering the different implications in regulation, centralization, privacy, and security.
The implementation of a CBDC has both strong advocates and opponents. While the Biden Administration emphasized financial inclusion for all Americans as one of the objectives and benefits of a CBDC, many appear uneasy with the control the US Treasury and the Federal Reserve could have over CBDC transactions, and the possible implications for financial privacy. Although the administration has not yet decided whether it will implement a CBDC, some consider the White House’s publication of the Comprehensive Framework for Responsible Development of Digital Assets on September 16, 2022, as a sign that a US CBDC will likely occur in the future.
Adoption of a US CBDC would materially impact federal agencies’ business processes and IT systems. As such, federal agencies would benefit from a proactive approach to be prepared for a possible CBDC. Key considerations for research and questions to consider include:
Internal Control and Financial Management
Cybersecurity and National Security
While the US has not formally adopted a CBDC yet, CBDC pilots across the globe could be an indication that the implementation of a US CBDC is likely. Investing time upfront, taking a deliberate and coordinated approach, and looking at the full impact of a US CBDC on agencies’ missions and operations could make for a successful and smooth implementation.
Implementation of a US CBDC can be daunting, especially considering the many questions about roles, responsibilities, and impacts to agency financial management and operations. However, being well prepared could make the difference between a successful or a failed implementation of CBDC.
Guidehouse works closely with federal government clients by providing a unique combination of operational focus, business leading practices, and technology advisory support to drive mission success. Its Finance Innovation and Optimization teams deliver innovative, data-driven, and technology-enabled services and solutions to modernize financial operations and provide insights to leadership to proactively mitigate risk and optimize fiscal stewardship in the evolving government arena.
Guidehouse is also home to several industry experts who regularly advise our clients with strategizing and preparing for significant financial management changes, including those related to the digital economy.
This article was co-authored by Andreia Bodale, Ilona Garcia-Kat, and Ross Joyner.
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