CFTC Tech Advisory Meeting Features Possible Fed-backed CBDC Scenarios
The CFTC Technical Advisory Committee (TAC) discussed a Fed-backed digital currency in the latest remote meeting which it held last week. This comes as more jurisdictions move to consider CBDC's following China's progress in this space and the COVID-19 pandemic that has since raised the need for digital money.
One of the keynote speakers, Georgetown Law Professor, Chris Brummer, presented some scenarios under which the U.S Fed could issue a CBDC, comparing the solution to that being advocated by stablecoins. Brummer was keen to highlight that not all CBDC's are created equal hence multiple scenarios for a dollar-backed CBDC.
Dollar-backed CBDC Design Suggestions
In his presentation, Brummer further detailed six CBDC approaches that the Fed could take in developing a digital dollar. Most notably was the decision of whether to create an account or token backed ecosystem. The former is pretty similar to today's bank accounts, only that into. A token ecosystem, on the other hand, will be less strict since no identification would be required to operate in the network.
Another suggestion was whether to have the CBDC on both retail and wholesale markets or only on the latter. Wholesale markets encompass commercial banks and other large financial institutions, while a retail market refers to the general public.
Brummer noted that this was another angle the Fed should consider before transforming the CBDC niche idea into a reality. He further summarized that the future of CBDC's could only be dictated by the issuing authority since some central banks could decide to use commercial banks or issue the currency directly.
Greater Value Than Stablecoins
Recent months have seen stablecoins like the USDT gain popularity as stakeholders in the crypto market seek to preserve value while doing other activities such as yield farming. Brummer now says that CBDC's set out to achieve a similar goal and could have the upper hand since trusted monetary authorities back them. Brummer said,
“Central bank currencies can be seen as trying to provide more certainty and safety, if one will, behind the utility that a traditional stablecoin aspires to achieve.”
While the underlying value compared to stablecoins is clear, Brummer, however, warned that adopting CBDC's could destabilize the whole financial ecosystem as well. This is because central authorities might overlap the role of financial institutions in onboarding and serving clients, should they choose to roll out something like an account-based CBDC run by the Fed.