There are a lot of factors that have to be considered when it comes to digital currency development. Some of these factors include the level of regulations, the resilience and competitiveness of the payment systems, and the effectiveness of the regulatory framework. Other factors that have to be considered include the global pandemic, the growth of the Internet, and the growth of the financial industry.

China's push for a digital RMB

During the upcoming Winter Olympics in Beijing, China is expected to showcase its digital RMB (also known as the electronic Chinese yuan or e-CNY). Several countries have already tested or piloted digital currencies, including the United States and Thailand. Some experts are watching closely to see how it develops, particularly in relation to the U.S. However, some worry that the system could undermine American strategic interests.

The digital yuan may not only improve the efficiency of retail payment systems, but it will also give Chinese authorities more insight into people's lives. It will be less vulnerable to sanctions and can be distributed with conditions. This makes it more likely to be used for business purposes, enabling China to finance projects of the Belt and Road Initiative.

In addition, the digital yuan system will reduce costs. It can be used for dining, shopping, and personal finance. As it expands, it will also help small and medium-sized enterprises to benefit more.

U.S. reluctance to regulate

While the United States has long touted the benefits of virtual currencies, it's become increasingly clear that the government is also taking a hard stance on their misuse. Virtual currency exchanges have been subject to more stringent regulations in an attempt to discourage the illegal use of virtual currencies. The Treasury Department has also taken steps to make the process of processing digital currency transactions more difficult for online criminals.

A number of bipartisan bills are circulating through Congress, most of which are focused on defining digital assets and their regulation. The most recent of these bills, the Digital Commodities Consumer Protection Act (DCCPA), was introduced in the Senate by the chair of the banking committee. Its aim is to set up the Commodity Futures Trading Commission (CFTC) as the primary regulator of all digital asset firms.

While the DCCPA is unlikely to be passed this Congress, other bills are making their way through. Among the more enlightening are the Lummis and Gillibrand bills, which define virtual currencies as commodities.

Impact of global pandemic on CBDC development

One of the most important developments in recent financial history has been the impact of the global pandemic on digital currency development. The benefits of an advanced payment system have been well-documented, but the challenges have also been noted.

A central bank digital currency (CBDC) is a digital form of fiat currency issued by a central bank. These currencies offer a secure way to conduct transactions that is readily convertible into cash.

Several central banks have launched CBDC initiatives. The Bank of England has been exploring potential options and issued a discussion paper about the benefits of a CBDC.

In China, an advanced pilot program for a digital yuan has been launched. Its success could provide the foundation for a major leap forward in digital payments worldwide.

While the pandemic has not yet triggered a significant change in digital payments, it has prompted an examination of the digital payment systems of today and the future.

Regulation, efficiency, resilience, and competitiveness of payment systems

In this environment, the United States government has an interest in strengthening economic competitiveness, ensuring technological interoperability, and promoting the responsible development of digital assets. Its goal is to reduce the cost of cross-border funds transfers and increase access to safe financial services.

Digital innovation has wrought far-reaching changes in all sectors of the economy. However, consumer protection issues also arise. For example, in a digitized economy, consumers must be protected from fraud and money laundering. The monetary system underpins the entire economy and permeates daily life. Despite the progress in technology, high costs remain.

Central banks can play a role in fostering innovation in the payments marketplace. They can ensure security and privacy in payments by laying the groundwork for data governance and safeguards. And they can promote open payment platforms, ensuring a level playing field for private PSPs.

One way in which central banks can contribute to the development of digital money is through the establishment of Central Bank Digital Currencies (CBDCs). These can be designed as an advanced representation of money for the digital economy.