.svg)
The US’ ban on central bank digital currencies (CBDCs) creates opportunity for the private sector, but some are concerned the government’s refusal to lead in this area will cede ground to Europe and China.
As covered by Vixio, in January the Trump administration imposed a blanket ban on CBDCs as part of an executive order intended to strengthen US leadership in digital financial technologies.
The move was heralded as an attempt to protect consumer privacy in the country while improving financial sovereignty.
However, sources suggested it had instead been a victory for the private sector, which would step in to fill the gap, with no additional guarantees of privacy.
One reason given for banning the development and implementation of CBDCs is to stop the rise of a state-controlled digital dollar in the retail space that critics argue could undermine individual freedoms.
However, the US approach differs radically from those taken in other jurisdictions such as China, the UK and the EU, which are at varying stages of developing digital currencies of their own.
Sources have told Vixio that the move signals a retrenchment from the global leadership role that the US has long played in the financial sector, including payments, and demonstrates a deep distrust of government-led financial systems, integration and interoperability.
Relinquishing leadership?
It remains to be seen whether sacrificing influence over global payments is a smart move, or simply an oversight made in the name of US protectionism.
“There are privacy concerns about retail CBDCs — that's why it has become a political issue in many countries, not just here in the US but also in the eurozone. However, it is important to understand that by the end of the decade there will likely be a digital euro, a digital pound and a digital yen,” said Josh Lipsky, senior director at the Atlantic Council.
He noted that the central banks in these key economies have committed to pilot projects and will likely issue CBDCs in the coming years.
“We are in a very different place here in the US — we are very far away, if ever, from having a retail CBDC. Regardless of the domestic use cases, we miss out on the standard setting of abilities by not having something to bring to the table internationally. Because countries are going to do it anyway — not everyone, but some will. And we want our models, our privacy, our cyber security standards, our interoperability, to be embedded into those systems and not leave the playing field open.”
If the US steps away entirely from CBDCs, ignoring the fact that the dollar remains the global reserve and currency of choice on an international level, it will allow the eurozone and China to set the precedent and establish the rules that could govern the financial system of the future.
Sources suggested that the CBDCs that are being developed are not simply about providing domestic or cross-border payments, but about control and oversight.
Allowing their dominance will permit foreign actors to reshape global trade and even potentially shift financial control away from New York and Washington, DC.
Progress around the world
China’s digital yuan (e-CNY) is already in circulation and expanding into international trade, and the European Central Bank (ECB) is developing a digital euro to remain competitive.
A number of developing economies, including the Bahamas, Papua New Guinea and Nigeria, also have CBDCs at different stages of development.
Chris Giancarlo of the Digital Dollar Project, a former chair of the Commodity Futures Trading Commission (CFTC), said that allowing China or the EU to take the lead on CBDCs could lead to the imposition of censorship and surveillance on US users.
“What are the restrictions on a government's desire to know what transactions happen? Law enforcement is one thing, but does it go beyond that?” he asked.
Giancarlo believes the US has a chance to influence the values inherent in CBDCs.
“The society that gets the values right in digital currency, whether sovereign or non-sovereign, will have a tremendous advantage in the digital future,” he said.
“Free societies have long recognised the balance between individual privacy and law enforcement. The society that gets that balance right in their digital money can have a winning combination. It's going to put the pressure on the US.”
Europe is working hard to integrate the digital euro into its existing financial system, and when it materialises the CBDC will likely be deeply enmeshed in both banking and commerce.
According to Giancarlo and others, allowing the digital euro to set the standards risks the dollar's status as the reserve currency and the US’ seat at the table in shaping regulatory and policy protocols in payments.
MiCA and CBDCs
A further relevant development in Europe is that the second part of the Markets in Crypto Assets (MiCA) regulation, the EU's attempt to impose rules on the crypto sector, came into force on December 30, 2024.
Part of what the regulation does is provide provisions for what the bloc calls "asset reference tokens", which are e-money tokens that could be used to issue CBDCs.
The US CBDC ban will therefore likely affect the regulation’s impact.
“What the ban is doing is effectively putting the United States on something of a collision course with MiCA, which says that you can actually issue CBDCs if you do these five things,” a senior crypto lawyer told Vixio.
“But the US is going the other way and saying you can't, or at least that it is going to be very difficult to do so. This poses a problem for some CBDC issuers, because Europeans can use a digital euro. However, if it won’t be usable in the United States effectively it cuts the value of any CBDC by half, if you look at the EU and the US as being the two largest, most liquid markets out there.”
China’s approach to CBDCs
One of the driving motivations for the US’ ban on CBDCs is to avoid the kind of situation seen in China, where the rise of the digital yuan has led many to question their privacy and the extent of state-led surveillance of the payments system.
However, sources suggested that China also aspires to provide an alternative to the dollar by embedding its digital currency into the global digital payments infrastructure.
“There is a belief that the Chinese are seeking to displace dollar sovereignty or dollar supremacy. This would deny the United States the advantage that it currently has in being the issuer of dollars and therefore controlling world trade and the economic balance of power,” a blockchain-focused partner at a law firm in New York told Vixio.
“Saying that we won't recognize any other country's stablecoin certainly does seem to be an anti-Chinese move.”
The fear is that China will look to replace systems such as Swift and bypass the established banking systems of New York or London, de-dollarising the global economy with a viable, cheap alternative.
“The economists at the IMF will say ‘the dollar is fine, there are no challengers out there to the dollar, what are you worrying about’, but others will say there is a national security role of the dollar that is different to the macroeconomic role,” said Lipsky.
The pipes are getting built all over the world, he added. Although they take a long time to build, once they are ready and the water turns on you will start seeing some of these changes in the underlying shifts of currency reserves.
For example, Project mBridge is a cross-border CBDC platform established in 2021 between the BIS Innovation Hub, the Bank of Thailand, the Central Bank of the United Arab Emirates, the Digital Currency Institute of the People's Bank of China and the Hong Kong Monetary Authority, and the Saudi Central Bank, which joined in 2024.
At the BRICs summit in Russia in October 2024, President Vladimir Putin said that mBridge could become a cross-border currency platform for the group, potentially sidestepping sanctions.
Soon after, the BIS group left the project, although it noted at the time that the decision was not due to political factors but marked a "graduation" for the project and its members.
“Money is technological, money is policy and money is geopolitical, but we shouldn't just complain about other projects. mBridge is going to continue even without the BIS involvement — China will add more members and will be solely in charge without its involvement,” said Lipsky.
He argued that, rather than allow other nations to exert influence, the US should seek to spearhead digital currency development.
“We should develop a better alternative. We have such incumbency advantages here — the dollar, the euro, the pound. If those currencies work together, there is no country in the world that can afford to not be part of that system,” said Lipsky.
“We should continue to innovate and offer the best systems and the best technology available.”
Sources agreed that the US cannot simply ban CBDCs and sit out the conversation. Losing ground in the race to offer a fully digital currency in a way that aligns to American values would be problematic for national security and the US economy.
With the CBDC ban, the baton is passed to the private sector, so for US interests it is now crucial that it does the job efficiently and with a clear framework for security, privacy and safety.
Otherwise, there could be a radical overhaul of the global payments system.
