U.S. Facing Pressure from China as Digital Currency Adoption Debate Continues

WASHINGTON, May 12, 2022 – The U.S. is falling behind China as the central bank ponders whether to adopt a digital currency, according to observers.

“If other countries are innovating in a direction that could represent a technological advantage, and the US is not prepared to meet that challenge, the U.S. will be at a disadvantage,” said Stephanie Segal, senior associate of the economics program at the Center for Strategic and International Studies. She and other panelists were speaking at a CSIS event on Thursday.

Segal’s comments were supported by her colleagues at the center, which hosted panelists to discuss the promises and pitfalls of creating a central bank digital currency. These stablecoins, as their called, are backed by other currencies, including fiat money.

Matthew Goodman, senior vice president for economics at CSIS, noted there is a lot of uncertainty surrounding this debate on the digital dollar. While there has been interest in the U.S. for developing such a currency system, Goodman said the US is relatively “behind” and delayed in conversations about CBDC compared to countries like China.

According to Fariborz Ghadar, scholar and senior advisor at CSIS, developing a CBDC is no easy fix, and is a risky step. However the concern about China having already developed a CBDC is a “major triggering point” he said.

Steven Kamin, senior fellow at the American Enterprise Institute, called China’s development of CBDCs “nearly operational” and potentially problematic for the U.S., with China as a world leader in technology. Kamin was speaking at an AEI event in April.

Risks of such a digital currency

A CBDC has upsides, but also presents risks to privacy and cybersecurity, according to Segal. She said a CBDC could create fear about data collection methods, regarding who has access to the data, and wonders if privacy protections would be provided.

Additionally, instead of having various intermediary points of security with the current banking system, a central bank digital currency would only have one point of security, making cybersecurity more vulnerable to threats, according to Segal.