LONDON, Jan 28 (Reuters) - The swift action by Donald Trump to block a "digital dollar" has created an opportunity for China and Europe to potentially establish their already advanced central bank digital currency (CBDC) prototypes as global standards.
While the United States has historically hesitated to digitize the world's top reserve currency, being the only country to enforce a ban on such a development is significant.
Prior to this decision, the U.S. was among the many nations constituting 98% of the global economy, exploring CBDCs to harness or at least match the rapid technology advancements.
Advocates believe digital currencies could enable 24/7 real-time cross-currency transactions and serve as a viable alternative to physical money that is in decline.
Critics argue that current systems can deliver similar benefits, and concerns worldwide have revolved around CBDCs potentially enabling government surveillance, a notion rebutted by central bankers.
Leading the way in CBDC initiatives are countries like China, the Bahamas, and Nigeria, witnessing growth in their digital currencies. Despite resistance in Brussels, plans for a digital euro's key features are expected later this year.
Josh Lipsky, from the Atlantic Council's CBDC tracker, points out that Trump's ban might not directly impact the U.S. due to the Federal Reserve's lack of enthusiasm for a retail digital dollar. Nevertheless, it sends a global message.
The absence of U.S. involvement in CBDC technology could boost stablecoins as surrogate digital dollars. China can go to other countries and say the U.S. is not involved in this technology you're interested in, but we are and we are leading, Lipsky noted.
At a time when geopolitical divisions over CBDCs are arising, Trump's anti-digital dollar stance contrasts with his support for cryptocurrencies, creating uncertainty.
Trump's ban on digital dollar development, citing threats to national sovereignty and financial stability, prohibits U.S. agencies from promoting CBDCs.
This move echoes a broader narrative in CBDC development.
Amidst these developments, the fate of the BIS project, dominated by Western G7 central banks and including the New York Fed, remains uncertain.
Several questions linger about the future of CBDCs and their interaction without U.S. involvement, prompting speculations about the potential role of stablecoins in such a scenario.
The way forward for projects like Agora in the absence of U.S. support might require significant adjustments.
This could necessitate a substantial shift, McLellan said, “would require a major pivot.”