Yaya Fanusie, a cryptocurrency researcher and former CIA analyst, believes the United States government’s relatively slow start on central bank digital currency (CBDC) development may result in it losing its grip on the global financial system.
Fanusie, the policy head at crypto advocacy group, the Crypto Council for Innovation, explained in a Feb. 28 Bloomberg interview, that sanctioned states are looking to transact on financial infrastructure that isn’t controlled or heavily influenced by the U.S. to move funds more freely cross-borders.
Fanusie explained that state-issued CBDCs could be a part of the financial infrastructure that will be globally adopted. If the U.S. has little influence over these new standards, it “impacts U.S economic statecraft.”
If the U.S. continues to sit on the “sidelines” and lag on CBDC adoption, Fanusie believes this may spell “trouble” and cause unforeseen “geopolitical implications” over time:
“The potency of our sanctions power comes from the centrality of the U.S. to the financial global infrastructure. So if that shifts a little bit, it doesn’t mean that China is going to take over or that the yuan is going to displace the dollar but if there’s a viable new rail where sanctioned actors can now transact, that’s trouble.”
The U.S. Federal Reserve has, however, recently made progress on its CBDC — the digital dollar project — releasing the latest version of its white paper on Jan. 18:
Today we are proud to release DDP’s 2023 white paper update where we revisit our “champion model” proposed in 2020, provide recommendations to the US government and private sector and look ahead to the next stage in #CBDC developments @giancarloMKTS https://t.co/bX5u4zfqMc pic.twitter.com/si2joxbkq9
— The Digital Dollar Project (@Digital_Dollar_) January 18, 2023
However, the Federal Reserve has not received approval from the U.S. government to proceed with the CBDC project.
Fanusie highlighted that China has benefited from a near-first mover advantage, having explored CBDCs since 2014 and launching the pilot version of its digital yuan on Jan. 4, 2022, which Fanusie says has processed “millions of transactions” across “millions of wallets,” so far.
Fanusie added that there is an “array of pilots” testing out smart contracts to add programmability to the CBDC, and that China is helping other countries to adopt similar standards.
He added that an unspoken “race” is possibly going on in the CBDC frontier as nations look to gain a geopolitical edge.
“That’s happening whether we want to like it or not.”
However, previous commentators on the CBDC race between China and the U.S. have said that China’s CBDC ambition is purely about domestic dominance rather than trying to beat the U.S. dollar.
Related: What are CBDCs? A beginner’s guide to central bank digital currencies
CBDCs run on state-controlled ledgers are reportedly more efficient and easier to use in some cases than decentralized public networks, such as Bitcoin and Ethereum.
However, some opponents of CBDCs believe states are adopting blockchain-powered CBDCs to maintain a degree of financial control over their citizens.
Part of the pushback in the U.S. recently came from pro-crypto U.S. Congressman Tom Emmer, who recently introduced the CBDC Anti-Surveillance State Act to protect the financial privacy of U.S. citizens from actions by the Federal Reserve:
Today, I introduced the CBDC Anti-Surveillance State Act to halt efforts of unelected bureaucrats in Washington, DC from stripping Americans of their right to financial privacy. pic.twitter.com/lONbHFZMk7
— Tom Emmer (@GOPMajorityWhip) February 22, 2023