Digitization of US Dollars – Some Key Factors to Know by Kavan Choksi


Technology is evolving continuously and is creating an impact on all the ways how people live and spend. The central banks of many countries have initiated their efforts in reinventing the currencies to fit the digital era. Complementing this trend, the United States has become the latest one to research a digital version of the US dollars through CBDC, the Central Bank Digital Currency. There was an executive order from President Joe Biden regarding the digitization of the currency by commenting on the urgency of research and development of a digital currency.

China is now the second-largest economy in the world in terms of gross domestic product. It launched its digital version back in January and now claims to hundred million users for the same. Many other countries are now exploring their CBDCs at various levels, and the IMF also commented on the need for further research and development for CBDCs. So, most of the central banks across the globe are now rolling up their sleeves to explore the scope of digital money.

Kavan Choksi on US CBDC

A joined research report was published by the Massachusetts Institute of Technology and Boston Federal Reserve Bank last month after experimenting on a digital currency project named ‘Project Hamilton.’ Kavan Choksi points out that this used blockchain technology to produce a mighty codebase to handle about 1.7 million transactions every second. This was a bigger achievement as they were aiming to cross the benchmark of about 1,00,000 transactions/second.

On the other hand, the digital Yuan of China is not based on blockchain technology. The primary objective of the digital yuan is to replace the cash payments to be baked up with a mobile app released by the government as well as WeChat. This digital transaction platform uses the existing technological infrastructure of the Chinese bank payment platforms, which the People’s Bank of China has developed.

The benefits of CDBC

In the United States, CBDC can offer more convenience to customers and a cheaper and safer alternative to the current currency options. This could also curb the need for cash transactions and thereby reduce fraudulent transactions. It will also bring more efficiency in collecting taxes and dispersing government funds.

There are also benefits of financial inclusion by having a centralized digital currency. Initially, there are also some potential risks, including technological barriers, security challenges, and privacy threats. There may also be confusion initially as to the potential of CDBC to take over the work of credit markets and commercial banks. CBDC may also raise many political and policy questions, which the government needs to address. There could certainly be a political redesign and transition phase on introducing CBDC and experimenting with it over the next few years after its introduction.

However, all of these are expected to be for good, and CBDC will certainly be a necessity in the future, says Kavan Choksi. It is a fact that people do not really like to use cash, and the demands of the public, too, are pushing the governments to take the route of digital money.