CBDC Will Give Private Players Unfair Advantage, US Reps Warn

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A num­ber of US rep­re­sen­ta­tives are con­cerned a gov­ern­ment-fund­ed cen­tral bank dig­i­tal cur­ren­cy project will be sold to com­mer­cial banks. 

Reps. Tom Emmer, R‑Minn., and Patrick McHen­ry, R‑N.C., draft­ed a let­ter to Susan Collins, head of the Fed­er­al Reserve Bank of Boston, Thurs­day to express con­cerns over the New York Fed’s Project Hamil­ton and relat­ed pri­va­cy issues.

“It has come to Congress’s atten­tion that some firms par­tic­i­pat­ing in Project Hamil­ton intend to use gov­ern­ment resources from the project to design a CBDC with the intent to then sell those prod­ucts to com­mer­cial banks,” a Thurs­day state­ment from Emmer’s team said.

Project Hamil­ton, a joint ven­ture between the Boston Fed and MIT, is pri­mar­i­ly focused on devel­op­ing a retail dig­i­tal dol­lar and cor­re­spond­ing pay­ment chan­nels. The team com­plet­ed the first phase of the project in Feb­ru­ary, when researchers said the con­cept is scal­able and the tech­nol­o­gy feasible. 

Project Hamil­ton is giv­ing cer­tain pri­vate sec­tor play­ers an unfair advan­tage — as they would have exclu­sive access to gov­ern­ment-fund­ed research and ini­tia­tives — the rep­re­sen­ta­tives argued. Emmer and McHen­ry are request­ing more infor­ma­tion about the involve­ment of pri­vate sec­tor partners.

“The let­ter also asks how the Fed plans to address con­cerns that many have regard­ing the dan­gers a CBDC could pose to finan­cial pri­va­cy and finan­cial free­dom, which were the sub­ject of over 65% of the let­ters in response to the Fed’s Jan­u­ary 2022 report on CBD­Cs,” Emmer rep­re­sen­ta­tives said. 

CBDC projects in the US have shown signs of progress in recent months. The New York Fed and the New York Inno­va­tion Cen­ter (NYIC) have part­nered on a sep­a­rate CBDC-relat­ed project, known as Project Cedar, which research­es what a CBDC might look like in the US and what poten­tial use cas­es it may have. 

Project Cedar’s phase one results, released in Novem­ber, show that blockchain and dis­trib­uted ledger tech­nol­o­gy allowed for for­eign exchange spot set­tle­ments to com­plete in under ten sec­onds, the NYIC said, show­ing poten­tial­ly rev­o­lu­tion­ary real-world use cas­es for CBDCs. 

“Cur­rent­ly, cross-bor­der trans­ac­tions func­tion well, but there are oppor­tu­ni­ties for improve­ment,” the NYIC said in its report. “In gen­er­al, it takes around two days for a [for­eign exchange] spot trans­ac­tion to settle.”

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