Atlantic Council director sees financial system ‘fragmenting’ if US falls behind CBDCs
The US dollar’s place as the world’s dominant reserve currency, while not in immediate danger, could eventually change as countries continue to explore central bank digital currencies (CBDCs), according to an expert from financial institutions.
“Although the dollar is not in danger at the moment, over a long period, three [to] five [to] seven years, there could be a rift in the international financial system,” said Josh Lipsky, senior director of the Atlantic Council GeoEconomics Center, during an appearance on CoinDesk TV’s “first mover.”
Lipsky added that this doesn’t necessarily mean that another currency will replace the greenback, but it does suggest that a “true breakdown of different means of transactions, not just dollar-based,” could follow.
According to the think tank, 105 countries representing more than 95% of global GDP are considering establishing CBDCs. As the name suggests, CBDC are central bank-issued native digital currencies that operate primarily through the use of blockchain technology.
Last week, a research project comprising about 20 Asia-based commercial banks in four countries, has successfully settled more than $22 million in foreign exchange transactions, according to the Bank for International Settlements (IBS).
“We’ve never seen this before,” Lipsky said. “We have seen the technology tested. We have seen the hypothetical settlement, but we have not seen real money flowing between countries.
Lipsky said this represented “significant developments” in the world of CBDCs. The United States, however, is still in the research phase, as are other notable players, including the United Kingdom and Mexico, according to Lipsky.
Over the next two years, the United States could build a CBDC model that is “cyber-secure, privacy-protective, and offers near-instant settlement,” Lipsky said, and could even be the “international standard-setter,” encouraging other countries to follow suit.
“We are the dollar. We are the issuer of the world’s reserve currency and other countries that are in a more advanced state of CBDC development would be like, “Well, we should probably line up with what the United States and the ECB [European Central Bank] done,” Lipsky said.