Let’s explore the transition to Central Bank Digital Currencies (CBDCs) in stages:
1. Testing and Settlement Processes
In the initial stage, central banks will collaborate with commercial banks and the Federal Reserve to test the software and ensure smooth settlement processes. This phase is currently underway. Key points include:
Software Testing: Rigorous testing of CBDC infrastructure, security protocols, and transaction handling.
Settlement Procedures: Establishing efficient settlement mechanisms between banks and the central bank.
2. Voluntary Availability to Bank Customers
The second stage involves making CBDCs available to bank customers on a voluntary basis. Here’s what to expect:
Account Setup: CBDC accounts will be held at commercial banks.
U.S. Treasury Oversight: While banks manage these accounts, the U.S. Treasury will have full access to transaction ledgers.
3. Mandatory Adoption and Phasing Out Non-CBDC Accounts
The third and final stage aims to mandate CBDC adoption and eliminate non-CBDC accounts and physical cash. Key features include:
Compulsory Transition: All banks, regardless of size or location, will participate in the CBDC program.
Elimination of Non-CBDC Accounts: Traditional bank accounts and remaining cash will gradually phase out.
Citizens’ Recourse: In this CBDC-dominated landscape, citizens’ primary recourse will be gold and silver.
Challenges and Considerations
Political Factors: The project’s progress may be influenced by political changes (e.g., election outcomes).
Balancing Innovation and Stability: Central banks must strike a balance between innovation and maintaining financial stability.
Sven Franssen