China is outperforming the US when it comes to online money innovation, posing challenges to the status of the US dollar as a de facto monetary reserve. Nearly 80 countries, including China and the US, are in the process of developing a CBDC, or central bank digital currency. It is a form of money that is regulated but exists entirely online. China has already released its digital yuan to more than a million Chinese citizens, while the United States is still heavily focused on research.
The two groups in charge of this research in the US, the MIT Digital Currency Initiative and the Federal Reserve Bank of Boston, are looking at what a digital currency would look like for Americans. Privacy is a major concern, which is why researchers and analysts are watching the rollout of the digital yuan in China.
“I think if there is a digital dollar, privacy will be a very, very important part of that,” said Neha Narula, director of the Digital Currency Initiative at MIT Media Lab. “America is quite different from China.”
Another concern is access. According to the Pew Research Center, 7% of Americans say they don’t use the Internet. For black Americans, that increases to 9%, and for Americans 65 and older, it increases to 25%. Americans with a disability are approximately three times more likely than those without a disability to say they never go online. That’s part of what MIT is investigating.
“Most of the work that we are doing assumes that CBDC will coexist with physical cash and that users will still be able to use physical cash if they want to,” Narula said.
The idea of a CBDC in the US is aimed, in part, at making sure that the dollar remains the currency leader in the world economy.
“The United States should not rest on its current leadership in this area. You have to go ahead and develop a clear strategy on how to stay very strong and take advantage of the strong dollar, ”said Darrell Duffie, a professor of finance at Stanford. Graduate School of Business at the University.
Others see the digital yuan as insidious.
“The digital yuan is the biggest threat to the West that we have faced in the last 30, 40 years. It allows China to get its claws into everyone in the West and allows them to export their digital authoritarianism, ”said Kyle Bass of Hayman Capital Management.
Watch CNBC’s deep analysis video on CDBC to learn more.
