Digital Dollar Project outlines principles for US CBDC

The Digital Dollar Project (DDP) recently released a new whitepaper outlining the key characteristics of a potential US central bank digital currency (CBDC).

The whitepaper recommends that a US CBDC should be tokenized (i.e. digital representation of the US dollar). They argue that a tokenized digital dollar would provide “new levels of portability, efficiency, and accessibility.”

The DDP also recommends that a CBDC should exist alongside existing fiat currency and commercial bank money, while also mirroring many of the properties of physical money, including its ability to work with existing account-based systems.

As well as this, the digital dollar whitepaper calls for the maintenance of the two-tiered banking system. This would involve the CBDC being distributed through commercial banks and regulated financial technology and payment intermediaries.

Maintaining privacy is also a key concern, with the whitepaper stating that a digital dollar should support a balance between individual privacy rights and necessary compliance and regulatory processes.

In addition, the whitepaper stresses its imperative that a digital dollar should be monetary policy-neutral and not impact the Federal Reserve’s ability to affect monetary policy and control inflation. The technology and design choices for a US CBDC should be driven by functional needs and should offer flexibility for future adaptation based on policy and economic considerations.

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The DPP notes the absence of the US in international CBDC discussions until last year. They conclude by recommending that the US should actively lead global discussions on governance, interoperability, security, privacy, and scalability standards for CBDCs, rather than reacting to foreign decisions.

Overall, the whitepaper highlights the need for a clear and well-designed regulatory framework for digital currencies, including CBDCs, that prioritizes privacy, consumer protection, financial anti-crime compliance, financial stability, and the protection of monetary sovereignty.

Read more about Central Bank Digital Currencies:

• Digital Euro Association calls for strong privacy protections in CBDC development
• BIS Survey: Two-Thirds of Central Banks may issue retail CBDC within six years
• Public concern about CBDCs and surveillance is “misplaced” according to OMFIF
• The Components of a Functioning CBDC – XRP As the Global Bridge?