Trump’s Digital Dollar Ban Puts US Behind In Global Currency Race

WASHINGTON, Feb 4 (Bernama-AA) -- United States (US) President Donald Trump’s ban on a “digital dollar” has further set the US back in the race for digital currency, as China and the European Union (EU) continue advancing their own central bank digital currencies (CBDCs), Anadolu Agency (AA) reported. 

Trump signed an executive order titled “Strengthening American Leadership in Digital Financial Technology” on Jan 23, establishing a working group on digital asset markets, including cryptocurrencies, within the National Economic Council, while prohibiting American institutions from developing, issuing, or using CBDCs.

The order argues that a CBDC would threaten financial stability, individual privacy, and US sovereignty, fuelling debate among financial experts and cryptocurrency advocates.

By preventing the Federal Reserve from creating a digital dollar, the order risks setting the US further back in the fintech race.

The US is now the first country to ban its central bank from developing a digital currency, despite the Federal Reserve’s previously cautious approach to digitising the dollar.

Experts say the move allows China and the EU to solidify their leadership in financial technology.

The long-term consequences of Trump’s decision remain uncertain, but failing to keep pace could weaken the global standing of the US dollar.

Unlike cryptocurrencies, CBDCs are issued and backed by central banks, whereas crypto assets like Bitcoin are decentralised and maintained by a global network of computers.

Central banks worldwide, particularly the European Central Bank (ECB) and the People’s Bank of China (PBoC), are developing digital currencies and payment systems. Meanwhile, cryptocurrencies and stablecoins, such as the US dollar-pegged Tether (USDT), continue to grow in popularity.

As of September 2024, 134 countries and currency unions—accounting for 98 per cent of the global economy—were researching CBDCs, according to data from the Atlantic Council, an American think tank. The US was among them, but Trump’s executive order has now altered its position. In May 2020, only 35 countries were studying digital currencies.

By September last year, 66 countries were in an “advanced phase of exploration,” which includes the “development, pilot, or launch” stages, according to the report.

“Every G20 country is exploring a CBDC, with 19 of them in the advanced stages of CBDC exploration,” the report said. “Of those, 13 countries are already in the pilot stage,” including Türkiye, Russia, Australia, India, Japan, and Brazil.

Meanwhile, the Bahamas, Jamaica, and Nigeria have already launched their CBDCs.

The report also noted that the ECB is in the preparation phase for the digital euro, laying the foundations and rules for its CBDC while selecting providers to develop the platform’s infrastructure.

In December, the ECB published its second progress report, announcing that it had completed a review of the first draft of the digital euro’s rulebook.

At the same time, the PBoC has been leading efforts to develop domestic and cross-border payment networks using digital currencies. China’s digital currency, the e-CNY (digital yuan), has been in development since 2017.

As of June 2024, the e-CNY had around 260 million users and a total transaction volume of $986 billion.

Even before Trump’s executive order, the US had been lagging behind its competitors in digital currency development.

The Federal Reserve had been exploring the potential benefits and risks of a CBDC, with Chair Jerome Powell stating that the bank would seek congressional approval before issuing a digital dollar.

The House of Representatives passed a bill in May 2024 to block the Federal Reserve from launching a CBDC, but the Senate did not approve it.

Experts argue that while US officials aim to maintain the dollar’s stability, they mistakenly assume it does not need modernisation. The Federal Reserve had the opportunity to set global standards for future payment systems, but its indecision left the field open for others to lead.

Darrell Duffie, an economist and finance professor at Stanford University, told Anadolu that Trump’s executive order effectively halted the development of a digital dollar, though progress had already been minimal.

Duffie said there had been no significant advancements in the US digital currency project and that, as of last year, there was little political support or interest in a digital dollar.

He noted that the US government has taken a stronger stance against CBDCs than any other country, while the ECB has made significant progress on the digital euro, and China has long been running its e-CNY project.

Although the consequences of the US falling behind in the CBDC race may not be immediately clear, Duffie said, the lack of support suggests it was already premature for the US to introduce a digital currency.

-- BERNAMA-AA