Academic institutions’ projects and simulations of hypothetical scenarios involving foreign and national Central Bank, Digital Currency (CBDC)s in partnership with major banks might shed light on future developments.
If there is one aspect to hypothetical scenarios simulated by leading academic institutions, it is the fair probability that these “scenarios” will come to pass.
Here is a reminder from the not-so-distant past.
In October 2019, the Johns Hopkins Center for Health Security (JHCHS) partnered with the World Economic Forum and the Bill and Melinda Gates Foundation, and hostedEvent 201—a tabletop exercise focused on responding “to a hypothetical, but scientifically plausible, pandemic.”
Fast forward three months, and theWorld Health Organizationdeclared a global health emergency following the reported outbreak of a coronavirus. So eerily striking was the simulation that JHCHS eventually released a statement following numerous reports about Event 201 in relation to the “COVID-19 pandemic.”
The statement was arguably an attempt to appease curious, perhaps suspicious minds that JHCHS “did not make a prediction during our tabletop exercise. For the scenario, we modeled a fictional coronavirus pandemic, but we explicitly stated that it was not a prediction.”
Well, of course.
Then in May 2022, the mainstream news became paralyzed over the global outbreak of the monkeypox virus, albeit briefly. Interestingly—but perhaps unsurprisingly—a biosecurityconferenceby the U.S. Nuclear Threat Initiative in partnership with Munich Security Conference had held a simulation the year before about a “global pandemic involving an unusual strain of monkeypox”—starting May 2022.
Thus, when the likes of Harvard Kennedy School, Massachusetts Institute of Technology (MIT) and the Federal Reserve Bank of Boston start running “exercises,” “simulations,” or “projects” about the usage and impact of central bank digital currencies (Central Bank, Digital Currency (CBDC)s), it’s probably a good idea to pay attention.
Perhaps even assume there’s a good chance that Central Bank, Digital Currency (CBDC)s are just around the corner—in the not-so-distant future.
MIT and Boston Fed completed Central Bank, Digital Currency (CBDC) project
n December 2022, Boston Fed updated its websitewith a new post: a joint research effort with MIT Digital Currency Initiative into the “technical feasibility” of a hypotheticaland potentially real Central Bank, Digital Currency (CBDC) had been finalized.
According to Boston Fed Executive Vice President Jim Cunha, this effort, known as “Project Hamilton,” was “agnostic” from the very beginning in relation to “any future policy decisions regarding new technologies and U.S. currency.”
Project Hamilton was namedfor central bank “Founding Father” Alexander Hamilton and pioneering MIT and Apollo Mission computer scientist Margaret Hamilton. Having initially commenced in 2020, the project “focused on better understanding the capabilities and limitations of different technologies that might be used to manage and transfer Central Bank, Digital Currency (CBDC)s,” according to Cunha.
Research progress is openly published
During its exploratory phase in February 2022, Project Hamilton published researchon a Central Bank, Digital Currency (CBDC) transaction processor developed as anopen-source software coined “OpenCentral Bank, Digital Currency (CBDC).” The director of MIT Digital Currency Initiative, Neha Narula, commented:
“The OpenCentral Bank, Digital Currency (CBDC) codebase that resulted from this successful collaboration provides a credible and unbiased resource to evaluate design choices and ensure that a potential future Central Bank, Digital Currency (CBDC) could serve the public’s interest.”
Indeed, international contributors are being encouraged to continue developing OpenCentral Bank, Digital Currency (CBDC). Boston Fed Assistant Vice President Bob Bench said the team “wanted a better understanding of how money could work in the future,” and that Project Hamilton helped “the greater public, which relies upon fast, accessible, and safe money.”
As open-source software, OpenCentral Bank, Digital Currency (CBDC) is free for anyone with an Internet connection to download. The software, which would serve as a Central Bank, Digital Currency (CBDC) transaction processor, is “a core processing engine for money that focuses on security, performance, scalability, and flexibility,” providing a codebase that supports 1.84 million transactions per second and completes transactions in less than a second.
Such transparency in openly sharing project research might satisfy the curious-minded and reduce suspicions of a “secret cabal” scheming behind closed doors, especially among those less trusting of government, banking and leading academic institutions.
Stay tuned for the release of further research
Researchers at the Boston Fed and MIT said they plan to release additional retrospectives on Project Hamilton’s findings. Narula said that “the project gave researchers a strong foundation for understanding the policy and technology choices that arise in the context of a Central Bank, Digital Currency (CBDC).” She went on to say:
“Our collaboration with central banks such as the Boston Fed is at the heart of [Digital Currency Initiative’s] DCI’s ongoing mission to serve as a neutral convener of governments, academics, open-source communities, and the private sector. We hope that this collaborative, open-source research effort is a model for researchers from academia and the public sector to build on as we explore the future of money.”
Although the Federal Reserve Banks are not a part of the federal government, they exist because of an act of Congress. Thus, Boston Fed’s collaboration with MIT as a private institution reflects the ongoingpartnershipsbetween government or independent government agencies, academia and the corporate sector to develop schemes that align with national or international plans.
Indeed, let us not forget that the Federal Reserve Bank of New Yorkannounceda 12-week proof of concept (PoC) program in November 2022,having partnered with major financial companiesto explore how digital U.S. dollars might improve financial settlements, including participation from central banks, commercial banks and regulated non-banks. Although the PoC is conducted in a test environment using only simulated dollars,several central banks worldwide are exploring retail Central Bank, Digital Currency (CBDC)sfor use by businesses and the general public.
So while MIT has been running Project Hamilton to test the practicality of Central Bank, Digital Currency (CBDC)s for everyday Americans, the Harvard Kennedy School has been running a simulation to explore the impact of foreign Central Bank, Digital Currency (CBDC)s on U.S. national security.
Harvard simulation explores threats of foreign Central Bank, Digital Currency (CBDC)s
Picture the following scene. The year is 2021, and North Korea has just tested a missile that analysts believe could deliver a nuclear warhead to the continental United States within a year. Thus, the president calls upon the National Security Council to assess threats to U.S. national security and formulate responses. However, a major challenge is that North Korea’s nuclear capabilities are funded using Chinese Central Bank, Digital Currency (CBDC), which U.S. authorities cannot track.
That is, according to the details of a simulation hosted by the Economic Diplomacy Initiative and co-sponsored by the Belfer Center for Science and International Affairs at Harvard Kennedy School, published in November 2019.
Indeed, the simulation facilitated a “policy discussion” on the role of foreign Central Bank, Digital Currency (CBDC)s and their potential threat to U.S. dominance, thus rendering current economic sanctions applied to North Korea ineffective.
Although the simulation was hypothetical, it is based on real-world initiatives like “Communist China’s efforts to launch a digital yuan and Facebook’s proposed Libra coin,” and explores the potential impact on “the ability of the U.S. to implement sanctions, monitor illicit activities, and uphold data privacy standards.”
While theFederal Reservehas “made no decisions on whether to pursue” a U.S.-issued Central Bank, Digital Currency (CBDC), and while the Federal Reserve banks of port cities have been steamrolling Central Bank, Digital Currency (CBDC) exercises in partnership with academia and financial institutions, such simulations also project concern about the effects of foreign Central Bank, Digital Currency (CBDC)s used by nations perceived as hostile to U.S. national security.
The fundamental nature of money is changing
Narula, who played the role of the “Digital Currency Czar,” remarked that “the fundamental nature of money is changing.” She outlined potential scenarios, including U.S. adversaries using cryptocurrency and cyberattacks on national banks and the Society for Worldwide Interbank Financial Telecommunication (SWIFT) banking network.
Lawrence Summers, President Emeritus of Harvard University, played “Secretary of the Treasury.” He noted in relation to the impact of the digital yuan currency, “I wish I had better news. Fundamentally, our ability to sanction North Korea in a devastating way depends upon Communist China’s cooperation.”
All in all, any perceived foreign threat might provide an excellent reason—sorry, an excuse—for authorities to justify greater scrutiny of financial transactions and increased centralization of government power.
Maintaining U.S. national security justifies Central Bank, Digital Currency (CBDC)s
“The competitiveness of the U.S. dollar is a matter of national security,” Narula commented at the Harvard Kennedy School simulation.
The Belfer Center Director, Ash Carter, who played “Secretary of Defense,” agreed. “We can’t let stand the Chinese using this currency issue as a way of making inroads into what has traditionally been a strength of ours,” he added, remarking how Communist China is becoming increasingly proactive with economic engagements in Asia and Africa. “We have to counter it in some way.”
The discussion revolved around the perception that the “Chinese have created a problem” for the United States through their digital yuan currency, thus stripping away U.S. leverage with sanctions.
And, of course, every perceived problem demands a solution, if not by the government, then definitely by the governed.
“We should be creating a digital currency,” argued the “Director of National Intelligence” performed by Jennifer Fowler. She is the director atBrunswick Group, a U.K. critical issues firm that advises leading global companies and their stakeholders.
“There is a financial technology revolution taking place, and we are about to miss it,” agreed the “Ambassador to Communist China,” played by Richard Verma. He is the vice chairman and partner at the Asia Group, a D.C. strategic and business advisory firm.
“My recommendation,” Verma added, “Is we not try to quash this effort, but that we get on board.”
Ah. What a great reason, excuse or justification to offer the American people—that a threat posed by Communist China’s untraceable Central Bank, Digital Currency (CBDC)s is precisely why America needs to develop its own digital currency to counter perceived U.S. adversaries’ efforts.
“We need a strategy to resuscitate U.S. financial prowess,” concluded the “National Security Adviser” played by Eric Rosenbach, Belfer Center Co-Director, who was on the verge of calling the president as the simulation came to an end.
Whatever that strategy is to “resuscitate U.S. financial prowess,” chances are it will involve introducing Central Bank, Digital Currency (CBDC)s to the masses with a compelling sales pitch.
Such simulations, if nothing else, offer a glimpse into potential future developments; thus, we could assume that the justification and mainstreaming of Central Bank, Digital Currency (CBDC)s is on the horizon in the not-so-distant future.
Remember, what started as frantically purchasing excess toilet rolls for millions of Americans in early 2020 quickly transitioned to authoritarian government-issued lockdowns and coerced masking, and inoculations.
Perhaps, this time round, let us keep a cool head, remain poised and stay well ahead of a potential game plan.
Cameron Keegan is an independent researcher and writer on American politics, faith, and culture through a conservative disposition. To learn more, visitDear Rest Of America. Please consider making asmall contributionvia “buy me a coffee” because yoursupportwill help provide you with ongoing commentary.
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FAQs
Why do you think there is a need for central bank digital currencies? ›
There is no universal case for CBDCs because each economy is different. In some cases, a CBDC may be an important path to financial inclusion—for instance, where geography is an obstacle to physical banking. In others, a CBDC could provide an essential backup in the event that other payment instruments fail.
What is the issue with central bank digital currency? ›The real danger in CBDCs is that there is no limit to the level of control that the government could exert over people if money is purely electronic and provided directly by the government. A CBDC would give federal officials full control over the money going into–and coming out of–every person's account.
What factors could have led to the introduction of central bank digital currency? ›These include: (i) interest in technological innovations for the financial sector; (ii) the emergence of new entrants into payment services and intermediation; (iii) declining use of cash in a few countries; and (iv) increasing attention to so-called private digital tokens.
Is the US switching to digital currency? ›According to new Atlantic Council research, the United States, thanks to Project Cedar, has moved into development of a central bank digital currency and joined its colleagues at the European Central Bank, the Bank of Japan, and the Bank of England in making the leap forward.
What are the pros and cons of central bank digital currency? ›| Pros | Cons |
|---|---|
| More efficient and secure payments. | Central banks have complete control. |
| Allow consumers to use central bank directly. | Less privacy for users. |
| Eliminate risk of a commercial bank collapse. | Difficult to attain widespread adoption. |
Digital money can streamline the current financial infrastructure, making it cheaper and faster to conduct monetary transactions. It can also ease monetary policy implementation by central banks. Examples of types of digital money are cryptocurrencies, central bank digital currencies, and stablecoins.
What are the disadvantages of central bank digital currency? ›If the popularity for individuals to move their deposits from commercial banks to the CBDC holdings increases over time, this will put pressure on banks and lead to loss of funding for the institutions. This could lead to a knock-on effect for businesses and households as the banks may not be able to make loans.
What is the impact of digital currency? ›It is meant to supplement existing physical cash and not replace it. The aim is that digital currency would, hopefully, reduce dependence on physical cash. The economy as a whole would gravitate toward digital payments and currency – resulting in reduced costs of printing, storage, and transportation of physical cash.
Are central bank digital currencies the future of money? ›As central banks take their time getting digital currencies right for their populations, they must also keep an eye on the private cryptocurrency market. While there are concerns about a digital future for money, they won't prevent it coming.
How can central bank digital currencies improve financial inclusion? ›In particular, central banks are considering design options around promoting innovation in the two-tiered financial system (eg allowing for novel non-bank payment service providers), offering a robust and low-cost public sector technological basis (with novel interfaces and offline payments), facilitating enrolment and ...
What is central bank digital currency and how does it work? ›
Central Bank Digital Currency (CBDC) is a new form of money that exists only in digital form. Instead of printing money, the central bank issues widely accessible digital coins so that digital transactions and transfers become simple. Efforts towards CBDC grow all over the world for many reasons.
How will US digital currency work? ›Key Takeaways. A U.S. CBDC will be the digital or electronic form of the dollar that acts as legal tender and is regulated by the government. A U.S. CBDC will act as a supplement to existing forms of payment. Identity verification, intermediaries, and privacy protection are required parts of launching a CBDC.
What are the pros and cons of digital dollar? ›Some of the advantages of digital currencies are that they enable seamless transfer of value and can make transaction costs cheaper. Some of the disadvantages of digital currencies are that they can volatile to trade and are susceptible to hacks.
Will digital currency replace traditional currency? ›The top US bank regulator says that crypto tokens are unlikely to replace traditional currency and that banks should proceed cautiously when they experiment with the asset class.
What are the problems with digital currencies? ›Some people have suffered great financial losses from their crypto investments with recovery difficult if not impossible. Reports of crypto suicides as a result of these losses also became common news in 2021. Clearly, the volatility of digital currencies stands in the way of their success.
What problem would a US CBDC be best at solving? ›A CBDC could potentially provide for safer, faster and cheaper payments (including cross-border payments), spur innovation and expand financial inclusion, but could pose certain risks to the financial sector and to the larger economy.
What are the advantages and disadvantages of digital banking? ›| Advantages | Disadvantages |
|---|---|
| It is fast and efficient. Funds get transferred from one account to the other very fast. You can also manage several accounts easily through internet banking. | Your banking information may be spread out on several devices, making it more at risk. |
Digital currencies will eliminate intermediaries for payments. Since settlements will happen directly without intermediaries, it will reduce transaction time. Further, settlement will be available 24/7 and transaction cost will also be reduced.
Is digital currency good for the economy? ›Due to their accessibility, cryptocurrencies may spur financial inclusion globally. For underserved and unbanked populations — one billion of whom have mobile phones — the use of cryptocurrencies offers a shot at financial inclusion. Therefore it can be argued that cryptocurrencies are inherently good for the economy.
What is digital currency in simple words? ›Cryptocurrencies are digital tokens. They are a type of digital currency that allows people to make payments directly to each other through an online system. Cryptocurrencies have no legislated or intrinsic value; they are simply worth what people are willing to pay for them in the market.
Does digital currency cause inflation? ›
Yes, technically even Bitcoin experiences inflation as more of it is mined (as does gold). But because the amount of new bitcoin is automatically reduced by 50 percent every four years, Bitcoin's inflation rate will also decrease.
What are the examples of central bank digital currency? ›Examples of countries with CBDC initiatives include the following. Examples include the Sand Dollar by the the Central Bank of the Bahamas, the Naira in Nigeria, the Digital Rupee launched by the Reserve bank of India, and the Digital Ruble by the Bank of Russia.
Can central bank digital currency increase financial inclusion arguments for and against? ›Even though a central bank digital currency does not achieve the intended financial inclusion objective, at least, the other objectives for issuing a central bank digital currency can be achieved such as the reduction in cash management costs and the effective conduct of monetary policy.
Is central bank digital currency programmable? ›Trust in the value of money
The introduction of programmable CBDCs offers great opportunities, but the risks are considerable. CBDC is intended to be the digital equivalent of cash. There should be no privacy issues and no restrictions on use. Central banks must must ensure that people can trust the value of money.
Characteristics. A CBDC is a high-security digital instrument; like paper banknotes, it is a means of payment, a unit of account, and a store of value. And like paper currency, each unit is uniquely identifiable to prevent counterfeiting.
What is central bank digital currency around the world? ›Central bank digital currencies (CBDCs) are digital versions of cash that are issued and regulated by central banks. As such, they are more secure and inherently not volatile, unlike crypto assets. While some may assume that CBDCs are a new concept, they have in fact been around for three decades.
How many countries are working on a central bank digital currency? ›105 countries, representing over 95% of global GDP, are exploring a CBDC.
Does digital currency have a future? ›A new survey shows that a majority of Americans believe cryptocurrency is the future of finance. Both Democrats and Republicans believe cryptocurrency needs stronger regulation. With strong appeal to young people and minorities, cryptocurrency has the potential to create a fairer economy.
What does digital currency mean for banks? ›A central bank digital currency is the digital form of a country's fiat currency. A CBDC is issued and regulated by a nation's monetary authority or central bank. CBDCs promote financial inclusion and simplify the implementation of monetary and fiscal policy.
Is digital currency backed by anything? ›Backing a currency is done by the currency's issuer to ensure its value. Bitcoin and fiat currencies are not backed by any other asset.
Can digital currency be shut down? ›
Such a situation would most likely result in a temporary impairment of the network, and consequently, a steep drop in Bitcoin price and a fork of the blockchain. Just as Bitcoin has never been successfully 51% attacked, it has also never been shut down, even for a short amount of time.
What will replace the dollar? ›The currency wars are getting hot and it's looking increasingly likely that the world is going to start moving away from the US dollar as a reserve currency – gold or bitcoin are the front runners to replace it.
Is digital currency the same as Bitcoin? ›There is no other asset or physical entity that “is” a single bitcoin. Consequently, cryptocurrency is a form of digital currency. But not all digital currencies are cryptocurrency. Digital currency is any currency held in digital form.
Is America getting new currency? ›Current Schedule. The current denomination sequence and planned issuance dates have been in development with the Advanced Counterfeit Deterrence Committee since 2011: $10 (2026), $50 (2028), $20 (2030), $5 (2032) and $100 (2034).
What currency could replace the US dollar? ›The currency wars are getting hot and it's looking increasingly likely that the world is going to start moving away from the US dollar as a reserve currency – gold or bitcoin are the front runners to replace it.
What is the US new digital currency? ›A United States central bank digital currency (CBDC) would be a digital form of the U.S. dollar. While the U.S. has not yet decided whether it will pursue a CBDC, the U.S. has been closely examining the implications of, and options for, issuing a CBDC.
What percentage of US money is digital? ›According to an October 2021 piece by Harvard Business Review, over 97% of money in circulation is from online transactions. However, the digital money used is typically stored in a commercial bank ledger (or a public ledger in the case of cryptocurrency).