• China’s central bank says it is working on digital yuan
  • Demand for digital dollar increases amid China cryptocurrency push
  • Former CFTC chief forms group to develop digital dollar framework

An intensifying demand in the United States for developing a digital dollar is fuelled by reports of China’s advances in forging a digital yuan. There is a strengthening feeling that users of the US dollar are “underserved by an analog currency in a digital world,” Christopher Giancarlo, former chairman of the Commodity Futures Trading Commission (CFTC), said at an event at the World Economic Forum in the Swiss town of Davos.

“I think it’s very much worth considering,” Neha Narula, director of the Digital Currency Initiative at the Massachusetts Institute of Technology (MIT), told CNBC at Davos.

There have been reports that China is working on a digital yuan, which some believed could become available as early as this year, a report on the CNBC website said.

The People’s Bank of China (PBOC) recently announced that it was working on a digital version of the yuan, but had not given a timeline on when it would be operational.

Some experts said that a digital yuan could help China’s currency internationalize and challenge the dominance of the U.S. dollar.

Blockchain architecture

There is still some confusion about the nature of a digital currency that the U.S. central bank might issue. A preliminary assessment is that it could be built on the blockchain architecture that is the basis of various cryptocurrencies including bitcoin.

A major advantage of a central bank digital currency (CBDC) is reportedly easier cross-border movement of money and improved traceability to fight corruption or money laundering, according to Henri Arslanian, the global crypto leader at PwC. “The potential traceability features of CBDCs could, for the first time, give us a good fighting chance against corruption and money laundering. CBDCs also could allow policymakers to measure the impact of certain policies accurately and immediately,” CNBC quoted Arslanian as saying from Davos.

Nicknamed “Crypto Dad” for his open views to blockchain technology while at the CFTC, Giancarlo advocated the U.S. to issue a digital dollar. His Digital Dollar Foundation in partnership with Accenture works on the design and potential framework for a digital dollar. “If it (U.S. dollar) remains an analog currency the challenges of using it in a digital world are very complex,” he added.

“What we are proposing is a digital form (of that dollar) that would be minted by the central bank ... And it would be made available to users through the traditional banking system and other banking enterprises.”

MIT’s Narula said the U.S. Federal Reserve needed to boost its knowledge of digital currencies. “I think the Fed needs to gain expertise in this space. They cannot rely on the private sector for expertise, they need to build their own in-house expertise,” Narula said.

Costs and benefits

Federal Reserve Chairman Jerome Powell acknowledged that the central bank was looking into the possibilities of a CBDC. While the Fed had not developed its own digital currency, it was analyzing “the costs and benefits of pursuing such an initiative in the U.S.,” Powell said in a letter to lawmakers in November.

The digital dollar could be 10 to 15 years away, according to Jeff Schumacher, CEO of 55 Foundry, a company incubator, and investor. “The advantaged position of the dollar as the global reserve currency is very powerful and the Fed wants to protect that position. A digital dollar may introduce volatility to the dollar which is undesirable in the short term,” the report quotes Schumacher as saying.

“Ultimately I expect the digital yuan to play an important strategic role in China’s ongoing efforts to become a global financial superpower and compete with the U.S. dollar as the world’s number one reserve currency,” Garrick Hileman, head of research at Blockchain and researcher at the London School of Economics, told CNBC in a recent interview.