The Federal Reserve recently requested comment on a discussion paper describing the potential benefits and costs of issuing a CBDC.
The paper is not the ringing endorsement of the concept that some expected, and augurs a thoughtful weighing of those costs and benefits – writes Greg Baer and Paige Pidano Paridon, of the Bank Policy Institute.
And it arrives after one former and one current Fed Governor have expressed serious concerns about the concept, and the Chairman has noted that Congressional authorization was required for its adoption.
Meanwhile, the Bank of Canada has side-tracked its CBDC effort, noting that it does not see a compelling need for one. Likewise Australia, where the central bank governor noted of CBDCs that “we have not seen a strong public policy case to move in this direction, especially given Australia’s efficient, fast and convenient electronic payments system.”
In the UK, the Lords Economic Affairs Committee recently found that none of the witnesses who came before the committee (including the Governor of the Bank of England) was able to make a convincing case for a retail CBDC, and concluded that the introduction of a CBDC could pose significant risks.
All of this hesitancy is particularly notable because over the past few years, a principal reason that central banks have given for exploring issuance of a CBDC was the fact that…other central banks were exploring the issuance of a CBDC. A central bank FOMO.
What has happened? In sum, central bankers are taking greater notice of significant and unavoidable costs that would come from a CBDC; at the same time, the theoretical benefits that adherents have claimed for a CBDC have proven hard to identify in terms of practical use cases. Thus, this shrug may soon become a collective one.
Below is an updated look at the potential costs and purported benefits of a CBDC.
1. Preserving the Dollar’s Hegemony
Was it only a year ago that we were warned that the United States needed a central bank digital currency before the Beijing Olympics, lest the dollar lose its reserve currency status?
Chairman Powell has cogently explained his lack of concern about another country’s currency gaining an advantage over the dollar by taking on digital form, noting that the reason the dollar is the reserve currency is “because of our rule of law; our democratic institutions, which are the best in the world; our economy; our industrious people; all the things that make the United States the United States.”
One might add to the list: no history of capital controls, a powerful military.
While highly unlikely to supersede these considerable benefits, there are a few current threats to the dollar’s status: (1) $30 trillion in government debt; (2) persistently high inflation; and (3) over-leveraging of the dollar in economic sanctions.
The first two phenomena have been the death of other reserve currencies in the past. That said, the Federal Reserve obviously is taking steps to remediate inflation by raising interest rates and shrinking its balance sheet, and the current Administration has recognized the risks of unilateral use of sanctions. Converting commercial bank money to CBDC would not reduce the federal deficit.
Meanwhile, those who departed the Beijing Olympics on February 20th will be hastening to convert their digital yuan back to their local currency at the earliest possible moment, lest their transactions be tracked by the Ministry of State Security.
2. Serving Low-and Moderate-Income People
For some time, politicians have expressed hope that a CBDC could benefit low- and moderate-income Americans. Years after such talk began, however, one thing is missing: any explanation of how.
The Federal Reserve’s discussion paper makes clear that the Fed is only evaluating an intermediated model where “the private sector would offer accounts or digital wallets to facilitate the management of CBDC holdings and payments.”
The paper dismisses the notion of direct Federal Reserve accounts for individuals as illegal and unwise, and this conclusion was widely expected and supported. Nonetheless, the closing of this door is significant given that many CBDC supporters have equated CBDC with the notion of “Fed accounts” – that is, every American having a bank account at the Fed.
While that concept was amorphous and would have created innumerable problems, it is now sufficient to note that it is not going to happen.
With an intermediated model, no one has identified who would pay the intermediators – that is, providers of a digital wallet in which a CBDC would be held — for services attendant to holding and transferring CBDC.
Those services would include customer service, dispute resolution, AML compliance (including both on-boarding and transaction monitoring), fixed and variable technology expense, and more. The risk of a cyber attack would be massive, and the intermediator, not the Fed, would likely be liable for any loss. So, intermediating a CBDC would be a very expensive and very risky proposition.
Currently, banks make money on payment systems predominantly by lending out deposits and earning net interest income, but, because a CBDC held in a digital wallet cannot be lent out to borrowers, it would come with zero net interest income for a bank or other intermediator.
Banks (and FinTechs increasingly using rent-a-bank arrangements) also earn money through debit interchange, but it appears unlikely that interchange would be charged on a transfer of CBDC. Thus, companies that set up a digital wallet to hold and transfer CBDC seemingly would have to charge consumers a considerable fee for that service.
Furthermore, a CBDC would be very unlikely to pay interest. The Fed’s discussion paper explains that paying interest on a riskless CBDC “could reduce the aggregate amount of deposits in the banking system, which could in turn increase bank funding expenses, and reduce credit availability or raise credit costs for households and businesses.” It also describes at length how payment of interest would disrupt monetary policy.
But even if account administration were somehow, magically, free, how would an intermediated CBDC attract the unbanked? Data show that the unbanked are now a very small and shrinking part of the population, as low-cost, basic banking accounts have proliferated.
Surveys show that their reluctance to join the banking system often relates to a distrust of banks, including concerns about privacy as to the source of their funds. Other possibilities are a lack of sophistication about finance due to financial illiteracy.
Under an intermediated CBDC model, this same group of people would be required to establish an account at a bank or other financial company (including going through a full Know Your Customer process as required under anti-money laundering and sanctions rules), upload a digital wallet to a phone or computer, and then have their transactions monitored by the bank and perhaps by the government as well.
No one has yet explained why a person reluctant to sign up for a bank account would embrace such a relationship.
In sum, there is no reason to believe that an intermediated CBDC would prove attractive to the small percentage of the population that is currently unbanked, pay them more interest on their savings than they could earn elsewhere or provide them any financial service at a cost less than they pay now.
3. Combating Stablecoins
Three years ago, the predominant use of stablecoins was as a means of exchange ancillary to crypto trading. Today, the predominant use of stablecoins is as a means of exchange ancillary to crypto trading.
Three years ago, great concern was expressed about the potential for Facebook to use its stablecoin Libra to move finance outside of the banking system, disintermediate the dollar and disrupt monetary policy; today, two name changes later, Meta is liquidating its stablecoin subsidiary Diem.
Stablecoins can be placed in two different categories. Stablecoins in their currently predominant form – what we call “unstable stablecoins” – are structured like prime money market funds, as they are backed by assets like corporate debt and asset-backed securities.
They pose systemic risk, as they are susceptible to runs, and their interlinkage with crypto markets heightens that risk. But no one has proposed a CBDC as an answer to that problem; the answer is universally agreed to be better regulation and enforcement of existing laws.
Rather, a CBDC has been proposed as an antidote to the opposite problem: a “stable stablecoin” – that is, one backed solely by reserves at the Fed and short-term Treasury securities. Here, the concern is that investors would run to, not from, it in times of financial instability. So, not Tether but Circle’s USDC. But there are no signs of stable stablecoins disintermediating the banking system any time soon.
A proposed use case for stablecoins has been as a currency for the world of decentralized finance, or DeFi. But as the Bank for International Settlements recently observed:
In principle, DeFi has the potential to complement traditional financial activities. At present, however, it has few real-economy uses and, for the most part, supports speculation and arbitrage across multiple cryptoassets. Given this self-contained nature, the potential for DeFi-driven disruptions in the broader financial system and the real economy seems limited for now.
Stablecoins might have a use case in the coming metaverse, but there is no reason to believe that each universe – Microsoft/Activision, Meta, Epic, Roblox, etc. – will agree to a single stablecoin, or that the broader, physical economy will adopt the same stablecoin for regular, real-world payments (payroll, mortgages, groceries, utilities).
Of course, it is also quite likely that businesses and consumers will simply transact in the metaverse the way they do in the real world — transferring dollars using a credit card or a debit transfer via Zelle, Venmo, or PayPal – eventually with those payments likely clearing and settling in real time on the Clearing House RTP rails.,
Thus, for the foreseeable future, it seems highly likely that those transacting in the virtual world – purchasing NFTs, gaming components, concert tickets, even virtual real estate – will either do so in commercial bank money using existing payment rails or will need an on-ramp and off-ramp, where dollars are used to purchase a virtual currency, and that virtual currency is reconverted to dollars when the user wishes to spend elsewhere.
So, perhaps Microsoft will allow an Activision user to use its digital coin to purchase a physical Microsoft laptop, but there is no reason to believe that Apple will allow use of that coin to buy in iPhone, or that a gamer’s employer will pay him or her in the Activision coin.
To bring home this point, note that the official sector has strongly endorsed the notion that any issuance of stablecoins should be done by banks, noting with good reason that having them as issuers furthers financial stability and consumer protection.
The President’s Working Group on Financial Markets recommended that only insured depository institutions should be permitted to issue stablecoins, and Federal Reserve research has bolstered the case. The FDIC has indicated that deposit insurance is perfectly consistent with a bank-issued stablecoin, which would in effect be a tokenized deposit.
A recent note published by the Federal Reserve Bank of New York, “The Future of Payments is Not Stablecoins,” notes significant problems with “stable” stablecoins as a currency, and endorses bank-issued tokenized deposits as an alternative, as earlier suggested here. Thus, the light for bank issuance of stablecoins could not be any greener or burning more brightly.
And yet . . . banks have not begun to issue stablecoins. Numerous discussions with their payments strategists reveal a single reason: they cannot identify a use case. In other words, they do not have commercial customers who want to pay each other with a stablecoin as opposed to a currently available RTP/real-time payment or an ACH transfer; they do not have consumers demanding a stablecoin in lieu of Zelle, Venmo, a debit card or a credit card.
So, for the foreseeable future, it seems highly unlikely that stablecoins will emerge as a currency to rival the dollar, with a significant payments ecosystem being established outside the banking system and the Fed’s policy umbrella. Thus, there is no stablecoin disease for which a CBDC is needed as a cure.
Incidentally, this experience and the costs described above also make one wonder whether there would be a market for CBDC – which would be the ultimate stable stablecoin — that is, what financial company would wish to intermediate a digital wallet with a CBDC feature, and what business or consumer would wish to transact in CBDC as opposed to commercial bank money.
Again, the most attractive and perhaps sole use case for a CBDC would be the one feared by the Fed: as a safe haven in crisis that would strip funding from the economy.
And of course even if a world did develop where users forsook Zelle, Venmo and the like and a few stablecoins did grow to large scale both in the online and physical worlds, there is no reason whatsoever to believe that the companies selling in the metaverse or the people shopping there would abandon those stablecoins if a dollar CBDC in a hosted wallet were available as an alternative – and a myriad of reasons to believe they would not.
4. CBDC Combating Bitcoin
While never really a concern, it is worth a reminder that Bitcoin was never going to displace the dollar or disrupt monetary policy as a true currency that required a CBDC as an alternative. And no one is any longer suggesting that it will.
It is a highly volatile commodity that fails every test for a currency. While politicians soliciting crypto companies to move to their states or municipalities have announced plans to allow tax payments in crypto or receive their salaries in crypto, they have not announced plans to keep that money in crypto. For that business model, one needs to look to the ruins of El Salvador.
5. Improving Cross-Border Remittances
Here, the lack of a use case for CBDC appears to parallel the lack of a use case for stablecoins. Both were promised as a way to transfer money to impoverished people at greater speed and lower cost, and of course remittances were Facebook’s/Meta’s showcase use case for Libra/Diem.
Transfer and remittances using Bitcoin are associated with money laundering, ransomware and terrorist financing – so not a use case to which a CBDC would aspire.
While the promise of a CBDC to improve cross-border speed, efficiency, and cost was early on one of the primary rationales put forward as a reason to establish a CBDC, more recently, the enthusiasm over these possible benefits has cooled as recognition of the complexity of establishing an internationally viable framework and the ongoing improvements to existing payments systems has set in.
Recent reports by the Economic Affairs Committee of the House of Lords in the UK and the United States Congressional Research Service raise serious questions the efficacy of a CDBC to improve cross-border remittances.
There are several reasons why a CBDC would be unlikely to reduce costs or illicit finance risks or increase the speed of cross-border transactions, including remittances. First, to use CBDCs for this purpose, the sender likely would need to convert local fiat currency into CBDC, which could incur fees.
The recipient would need to exchange the CBDC for the sender’s currency and then convert that currency to the recipient’s local currency. This transfers similarly would incur fees and likely involve F/X spreads.
It is possible the recipient could exchange the sender’s home country CBDC for the recipient’s home country CBDC, although it is clear that any possibility of that capability is years away, and, furthermore, that transaction likely would incur costs that would have to be borne by at least some parties in the chain, including, at a minimum, costs related to F/X spreads once again.
Nor would adoption of cross-border CBDCs appear to solve or simplify current problems with cross-border payments presented by the by AML and sanctions framework.
Central banks could agree to exempt transfers of CBDC from all the regulatory and compliance requirements that currently complicate them – like going through the same AML/CFT and sanctions processes that banks do currently, including a full a full Know Your Customer process, as noted above – but they could take the same action under the current payments regime and for important reasons have decided not to do so.
Thus, participating institutions will need to conduct the appropriate AML and sanctions due diligence to facilitate the transactions, adding additional friction to this multi-leg process.
This includes compliance with the “Travel Rule,” which requires financial institutions, including nonbank financial institutions, engaged in transmittal of funds (fiat or crypto), to transmit transactions and customer details to the next financial institution in the chain of payment in order to aid law enforcement agencies by maintaining an information trail of transaction originators and beneficiaries – something that a handful of crypto firms have only this week unveiled a compliance solution for.
6. Making Payments Faster and Modernising the Payment System
While perhaps relevant in some countries, this rationale looks increasingly inapt in the United States, where a real-time payment system grows in use, consumers happily pay each other with Zelle or Venmo, and PayPal and Square thrive.
Thus, Federal Reserve Governor Waller has observed, “What problem would a CBDC solve? Alternatively, what market failure or inefficiency demands this specific intervention? After careful consideration, I am not convinced as of yet that a CBDC would solve any existing problem that is not being addressed more promptly and efficiently by other initiatives.”
One popular myth is that a CBDC would have allowed the Treasury to make stimulus payments to consumers more quickly during the COVID crisis. Those payments were made through the ACH network for customers who had bank accounts, and paper checks for the unbanked.
Some for whom the government had no address (because they had never filed a tax return) did not receive payments, who by definition would not have digital wallets. The existence of a CBDC would have done nothing to reach people without accounts or known addresses.
Certainly, if a customer set up a digital wallet with an intermediator, then a future stimulus payment could be made in the form of CBDC, but with such an account established, payment could also be made in seconds through the existing RTP real-time payment system, or through the existing ACH system.
Of course, there is one action the Fed could take to modernize the payment system. FedWire is the backbone of that system, and is a natural monopoly for the central bank. Yet FedWire operates 22/249, not 24/365. Modernizing FedWire – which the Fed committed to do in 2018 — would provide a significant boost to innovation in payments.
As described in various assessments, a CBDC would come with numerous risks, including privacy and cyber security. There is also the opportunity cost that comes with devoting extraordinary resources to a CBDC project at the cost of other central bank priorities (like FedWire modernization).
More significant is the dilemma of whether a CBDC would pay interest to its holder. If a CBDC paid interest, then it would pull deposits out of the banking system, increase the price of bank lending, and thereby slow economic growth.
Alternatively, if the CBDC paid no interest, which appears highly likely for the reasons noted above, it is unclear why consumers or businesses would wish to hold it, absent an environment with low or negative market interest rates.
In either event, a CBDC could significantly complicate the implementation of monetary policy. Balances held in CBDC, like reserves held by banks at the Federal Reserve Banks, would serve as a liability on the Fed’s balance sheet.
During a flight to quality, CBDC could grow rapidly and massively. For example, between February and May 2020, bank deposits grew $1.8 trillion and government-only money market mutual funds grew $1.2 billion, as investors sought the safety of cash.
If there had been a CBDC, a significant percentage of those fund would have flowed into CBDC instead, whether that CBDC paid interest or not. Assuming the Fed’s assets remained the same and given that its balance sheet must balance, that would have resulted in a corresponding reduction in bank reserves.
Even if only a third of that flow had gone to CBDC, that would have drained $1 trillion in reserves from the system. (By way of comparison, a $90 billion reduction in reserve balances was an important trigger for the September 2019 episode of repo market turmoil.)
To avoid even more volatility and an extremely unwelcome tightening in money market conditions in the spring of 2020, the Fed would have needed to purchase an additional $1 trillion in securities.
One financial stability risk, though, dwarfs all the other concerns. The Fed discussion paper notes it forthrightly:
Because central bank money is the safest form of money, a widely accessible CBDC would be particularly attractive to risk-averse users, especially during times of stress in the financial system. The ability to quickly convert other forms of money—including deposits at commercial banks—into CBDC could make runs on financial firms more likely or more severe. Traditional measures such as prudential supervision, government deposit insurance, and access to central bank liquidity may be insufficient to stave off large outflows of commercial bank deposits into CBDC in the event of financial panic.
And of course significant outflows of deposits at commercial banks would lead to an immediate disruption in the flow of credit to the real economy, exacerbating the impact of any stress event.
One major takeaway from the Fed’s working paper is that it proposes no design solution that would eliminate or even mitigate this concern, and no one else has done so. It remains a grievous flaw with a CBDC. Credit the Fed for not whistling past this graveyard, as some central bank proselytizers of CBDC have done.
Reducing Costs Reduces Benefits
The Fed’s discussion paper does note one potential answer for the financial stability risk of a CBDC: “A central bank could potentially address this risk by limiting the total amount of CBDC an end user could hold, or it could limit the amount of CBDC an end user could accumulate over short periods.”
The IMF has noted that the three existing CBDC projects (Bahamas, China, and the Eastern Caribbean Currency Union) have sought to prevent sudden outflows of bank deposits in to CBDC by not paying interest and limiting holdings.
Such steps would certainly reduce financial stability concerns, but they largely nullify the putative benefits of a CBDC. It will not alleviate poverty to have low- and moderate-income people hold their money in a CBDC that pays no interest rather than a federally insured checking or savings deposit that does pay interest.
And such a CBDC would not have commercial applications if it could not be used for large payments. Basically, it would be a hobby for the central bank.
As for limiting transfers under stress, one can hardly imagine the level panic that would be triggered if customers saw their transfers to CBDC being rejected. And that assumes that a technology solution could be devised and financed in order to enforce such limits – again, a significant cost for an intermediator for which no recompense has been identified.
As central banks and other observers begin to discuss actual use cases for a CBDC, the potential benefits recede and the costs come into sharper focus. The Federal Reserve has wisely taken its time, allowed the fog to clear, and embarked on a thoughtful study of whether a dollar CBDC makes sense.
 Quarles, Randal K., “Parachute Pants and Central Bank Money,” speech on June 28, 2021, available at https://www.federalreserve.gov/newsevents/speech/quarles20210628a.htm. See also Waller, Christopher J.,“CBDC: A Solution in Search of a Problem?”, speech on Aug. 5, 2021, available at https://www.federalreserve.gov/newsevents/speech/waller20210805a.htm. See also Derby, Michael S., “Powell Says Congressional Support Likely Needed to Adopt Fully Digital Dollar,” The Wall Street Journal, March 22, 2021, available at https://www.wsj.com/articles/powell-says-congressional-support-likely-needed-to-adopt-fully-digital-dollar-11616424452.
 Ljunggren, David, “Bank of Canada not planning to launch digital currency, at least for now,” Reuters, Oct. 18, 2021, available at https://www.reuters.com/world/americas/bank-canada-not-planning-launch-digital-currency-least-now-2021-10-18/.
 Lowe, Philip, “Payments: The Future?”, speech on Dec. 9, 2021, available at https://www.rba.gov.au/speeches/2021/sp-gov-2021-12-09.html.
 House of Lords Economic Affairs Committee, 3rd Report of Session 2021–22, HL Paper 131, “Central bank digital currencies: a solution in search of a problem?”, Jan. 13, 2022, available at https://committees.parliament.uk/publications/8443/documents/85604/default/
 Greenwald, Michael B. and Josh Lipsky, “Beijing or Bust: Why the U.S. Needs a Digital Dollar Before China’s Olympics,” The National Interest, March 22, 2021, available at https://nationalinterest.org/feature/beijing-or-bust-why-us-needs-digital-dollar-china%E2%80%99s-olympics-180850.
 Powell, Jerome, transcript of Federal Open Market Committee press conference, April 28, 2021, available at https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20210428.pdf.
 For a delightful look at that history and related issues, see Cembalest, “The Maltese Falcoin: On Cryptocurrencies and Blockchains,”, J.P. Morgan, February 3, 2022, available at https://assets.jpmprivatebank.com/content/dam/jpm-wm-aem/global/pb/en/insights/eye-on-the-market/the-maltese-falcoin.pdf.
 Per the Administration’s recent sanctions review report: “Sanctions are most effective when coordinated as an Administration with allies and partners who can magnify economic and political impact. This coordination also enhances the credibility of U.S. international leadership and shared policy or security goals of the United States and its allies” (p 5). See “The Treasury 2021 Sanctions Review.”,October 2021, available at https://home.treasury.gov/system/files/136/Treasury-2021-sanctions-review.pdf.
 It was unclear how such accounts were going to assist the poor; there was some suggestion that the government would simply give them money in the form of CBDC, but it can currently give them money through a direct deposit into a bank account.
 It remains to be seen whether the current Administration in a rumored and forthcoming executive order on cryptocurrencies might try to revive the concept of direct Fed accounts for individuals, despite the significant legal and practical impediments.
 A recent IMF study notes, “Central banks are committed to minimizing the impact of CBDCs on financial intermediation and credit provision. This is very important for the wheels of the economy to run smoothly. The countries we studied offer CBDCs that are not interest-bearing—which makes a CBDC useful, but not as attractive as a vehicle for savings as traditional bank deposits.” February 9, 2022, available at https://www.imf.org/en/News/Articles/2022/02/09/sp020922-the-future-of-money-gearing-up-for-central-bank-digital-currency. Also note that the Federal Reserve Act permits the Federal Reserve to pay earnings on “balances maintained at a Federal Reserve bank by or on behalf of a depository institution.” A CBDC held by a depository institution for a consumer may not be considered a “balance maintained” by or on behalf of a bank, although Section 19 of the Federal Reserve Act provides that the Board may prescribe regulations concerning the payment of interest on balances at a Reserve Bank. 12 U.S.C. § 461(b)(12).
 Federal Reserve Discussion Paper, “Money and Payments: The U.S. Dollar in the Age of Digital Transformation,” Jan. 20, 2022, available at https://www.federalreserve.gov/publications/money-and-payments-discussion-paper.htm (hereafter, “Discussion Paper”)Discussion Paper at 17.
 Discussion Paper at 19 (“The interactions between CBDC and monetary policy implementation would be more pronounced and more complicated if the CBDC were interest-bearing at levels that are comparable to rates of return on other safe assets. In this case, the level and volatility of the public’s demand for CBDC could be quite substantial. … The potential for significant foreign demand for CBDC in this scenario would further complicate monetary policy implementation…. To maintain an ample supply of reserves, the Federal Reserve might need to substantially expand its holdings of securities. The potential for market developments to have a material effect on the variability in demand for CBDC could also present challenges for managing reserves and implementing policy.”)
 While the percentage of unbanked U.S. citizens stood at 8.2% in 2011, this figure has been steadily falling, had reached 5.4% by 2019, and is likely even lower now. While this decrease can certainly be attributed to numerous factors, one such factor is that in 2019 alone, nearly 2 million Bank On accounts were opened and as of 2020, 3.8 million Bank On accounts were open and active. These accounts processed an average of 64 million debit transactions per month, often at no cost to the customer. See Federal Reserve Bank of St. Louis, “The Bank On National Data Hub: Findings from 2020”, available at https://www.stlouisfed.org/-/media/project/frbstl/stlouisfed/files/pdfs/community-development/bank-on/bankonreport_2020findings.pdf. For further discussion of the success and benefits of Bank On, please see Paul Calem, “Bank On” Transaction Accounts and Financial Inclusion (July 19, 2021), available at: “Bank On” Transaction Accounts and Financial Inclusion – Bank Policy Institute (bpi.com).
 The Fed paper notes in particular, “In practice, this would mean that a CBDC intermediary would need to verify the identity of a person accessing CBDC, just as banks and other financial institutions currently verify the identities of their customers. In this regard, a CBDC would differ materially from cash, which enables anonymous transactions. While central banks are unable to fully prevent cash from being used for illicit purposes, a CBDC could potentially be used at much greater scale and velocity than cash, so compliance with laws designed to combat money laundering and funding terrorism is particularly important for CBDC.” p. 14 and fn 20.
 Baer, Greg, “Making Stablecoins Stable: Is the Cure Worse than the Disease?”, Bank Policy Institute, Sept. 27, 2021, available at https://bpi.com/making-stablecoins-stable-is-the-cure-worse-than-the-disease/.
 Aramonte, Huang & Schrimpf, “DeFi Risks and the Decentralisation Illusion,” BIS Quarterly Review at 21, December 2021, available at https://www.bis.org/publ/qtrpdf/r_qt2112b.pdf.
In 2021, consumers and businesses transacted 1.8 billion payments through Zelle, which continues to be free and typically results in successful payment delivery within minutes.These payments amounted to $490 billion worth of transactions and represented a year-over-year increase of 59%. See Zelle, “Nearly Half a Trillion Dollars Sent by Consumers and Businesses with Zelle in 2021.” February 2, 2022, available at https://www.zellepay.com/press-releases/nearly-half-trillion-dollars-sent-consumers-and-businesses-zelle-2021.
 Venmo, a PayPal brand, processed approximately $230.1 billion worth of transactions in 2021, representing a year-over-year increase of 44%. See, PayPal Holdings, Inc. (2021) Form 10-K, available at https://d18rn0p25nwr6d.cloudfront.net/CIK-0001633917/82fd6358-df11-4e57-af9d-a5c66d48fadb.pdf.
 See Baer (2021). (“There does seem to be one way for stablecoins to avoid undermining the fractional reserve system while still offering convenience to customers, and that is for them to reach a state of equilibrium with bank deposits. (With a CBDC, equilibrium is impossible.) A clear way to establish that equilibrium would be for banks to issue stablecoins, with those stablecoins pari passu with bank deposits, and likewise available to fund bank lending.”)
The modern ACH Network experienced significant growth in 2021, with 29.1 billion payments valued at $72.6 trillion, and same day ACH payment volume grew nearly 74%. See NACHA, “ACH Network Sees 29.1 Billion Payments in 2021, Led by Major Gains in B2B and Same Day ACH.”, February 3, 2022, available at https://www.nacha.org/news/ach-network-sees-291-billion-payments-2021-led-major-gains-b2b-and-same-day-ach.
 The Clearing House’s RTP network use has seen a seven-fold increase in volume since the first quarter of 2020 and in the fourth quarter of 2021 processed 37.8 million transactions. See TCH, “Real-Time Payments for All Financial Institutions.”, available at https://www.theclearinghouse.org/payment-systems/rtp. Mastercard reported a gross dollar volume increase of 25% year-over-year on branded cards and Visa reporting a 17% increase in processed transactions year-over-year in 2020. See Mastercard Inc. (2021) Form 10-K., available at https://s25.q4cdn.com/479285134/files/doc_financials/2021/q4/MA.12.31.2021-10-K-as-filed-Exhibits.pdf & Visa Inc. (2021) Form 10-K, available at https://d18rn0p25nwr6d.cloudfront.net/CIK-0001403161/c2498d48-acd0-4f4d-8a36-9a10034f3060.pdf
 TCH’s RTP is currently only offered for domestic U.S. transactions, however, real time payments capabilities are being developed across multiple jurisdictions worldwide, with organizations such as SWIFT working to connect these domestic systems to enable cross border real time payments as well. See SWIFT, “Real-time payments.”, available at https://www.swift.com/your-needs/banking/real-time-payments.
 Beckwith, Ryan Teague, “Colorado Governor Says His Crypto Plan Withstands Market Selloff,” Bloomberg News, Jan. 29, 2022, available at https://www.bloomberg.com/news/articles/2022-01-29/colorado-governor-says-his-crypto-plan-withstands-market-selloff?sref=9xX5rA0h.
 Last October, Facebook/Meta launched a small pilot of Novi, Facebook’s digital wallet app, to transmit the Pax Dollar (USDP), a stablecoin issued by Paxos, between the United States (other than Alaska, Nevada, New York and the U.S. Virgin Islands) and Guatemala. Facebook touted the lack of fees for the service, but reading the terms of service reveals there may be fees in fact be fees imposed at various steps in the transaction. Further, reports on how this pilot is going are nonexistent.
 “The volume of cryptocurrency transactions grew to $15.8 trillion in 2021, up 567% from 2020, in a sign that the trading of digital assets is becoming increasingly mainstream. Illicit transactions totaled $14 billion in 2021, up 79% from $7.8 billion the previous year. But illicit transactions only made up 0.15% of cryptocurrency transaction volume in 2021.” See WSJ, “Cryptocurrency-Based Crime Hit a Record $14 Billion in 2021”,January 6, 2022, available at https://www.wsj.com/articles/cryptocurrency-based-crime-hit-a-record-14-billion-in-2021-11641500073, citing Chainalysis Crypto 2022 report, available at https://blog.chainalysis.com/reports/2022-crypto-crime-report-introduction/. In particular, per Chainalysis’ report (p.44): “Over the last few years, most ransomware strains have laundered their stolen funds by sending them to centralized exchanges. Some are in the high-risk category, meaning that they tend to have relaxed compliance procedures, but most [are] to mainstream exchanges with more established compliance programs.”
 The CRS concluded that “Without knowing the design features of a CBDC, it is unclear whether the use of CBDCs could reduce cross-border costs and increase speed [of remittances]. For example, communities that depend on money transmitters due to the proximity of branches overseas may find that CBDCs, although potentially faster, are not as convenient if they do not possess the technology to convert the CBDC remittance into a usable currency in their economy.” The CRS report also noted that the Fed’s CBDC paper recognized that “significant international cooperation would be needed to realize efficiency and cost gains in cross-border payments.” The CRS then observed that “. . . there has been relatively little international coordination among countries in their CBDC efforts . . . if each central bank adopts varying technologies and standards, it may be difficult to create interconnections between these systems to facilitate cross-border payments. A fragmented system of CBDCs could make it more complicated and expensive for U.S. consumers and businesses to complete cross-border transactions.” CRS at 20. The Economic Affairs Committee of the House of Lords expressed similar skepticism, noting that “CBDC systems could, in theory, bypass some of the existing frictions in the international payments systems, with lower costs. Nevertheless, a CBDC system would still have to comply with oversight frameworks, national laws and international technical standards which are a long way from being agreed. Cross-border payments are already improving as a result of innovation and competition in the fintech sector. A lot of international collaboration is under way both in the private and public sectors (including at the G7 and G20 levels) to further improve cross-border payments, which will make them more efficient, with or without CBDCs.” Economic Affairs Committee Report at 21.
 For a discussion about the on-and-off ramp costs with respect to stablecoins (which present similar costs), see “Should Western Union Worry About Stablecoins?” JP Koning, CoinDesk Insights, Jan 3, 2022, available at Should Western Union Worry About Stablecoins? (coindesk.com). See generally, “Central bank digital currencies for cross-border payments,” BIS Report to the G20, July 2021, available at https://www.bis.org/publ/othp38.pdf, which concluded that significant work remains to be done to determine whether CBDCs could reduce the current frictions in cross-border retail (or wholesale) payments, including with respect to regulatory, supervisory and oversight frameworks for cross-border payments, AMF/CFT consistency, PvP adoption and access to payment systems will be critical for CBDCs to reach their cross-border potential.
 See Keely, Aislinn, “Coalition of U.S. crypto firms unveils travel rule compliance platform, TRUST,” February 16, 2022, available at https://www.theblockcrypto.com/post/134408/coalition-of-us-crypto-firms-unveils-travel-rule-compliance-platform-trust.
 See Waller (2021).
 Light, Joe, “China Shows Off Digital Yuan at Olympics as U.S. Plays Catch-Up” Bloomberg,(February 15, 2022, available at, https://www.bloomberg.com/news/articles/2022-02-15/china-is-showing-off-its-central-bank-digital-yuan-currency-at-beijing-olympics?sref=9xX5rA0h.
 Discussion Paper at 17.
 For a discussion of the impacts of different stablecoin designs, including a CBDC, see generally Liao, Gordon Y. and John Caramichael (2022). “Stablecoins: Growth Potential and Impact on Banking,” International Finance Discussion Papers 1334. Washington: Board of Governors of the Federal Reserve System, https://doi.org/10.17016/IFDP.2022.1334.
 Discussion Paper at 18.
 Georgieva, Kristalina, “The Future of Money: Gearing up for Central Bank Digital Currency,” International Monetary Fund, speech on Feb. 9, 2022, available at https://www.imf.org/en/News/Articles/2022/02/09/sp020922-the-future-of-money-gearing-up-for-central-bank-digital-currency.
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