We are pleased to provide comments to the Office of Science and Technology Policy regarding the Federal Government’s efforts to thoroughly evaluate and potentially incorporate a central bank digital currency (CBDC) in the United States. The proliferation and use of digital assets in mainstream society is still in its nascency, but market signals suggest there are long-term benefits to adopting or integrating digital currency into the fabric of the United States’ monetary ecosystem.
In this RFI, we will first share our perspective on the “Goals, Sectors, or Applications Where Digital Assets Might Introduce Risk or Harm” and secondarily share our perspective on “R&D That Should Be Prioritized for Digital Assets.” We chose to provide comments on these two points because we believe they are interrelated. Moreover, the coordination of R&D to solve these problems requires a thorough understanding of both topics.
Goals, Sectors, or Applications Where Digital Assets Might Introduce Risk or Harm
The introduction and implementation of digital transactions into the United States financial ecosystem started in the early 1950s with the invention of the credit card. For example, Diners Club introduced the first credit card in 1951,1 which was followed by BankAmericard in 19582 and American Express in 1958.3 Mastercard entered the market in 19664 and BankAmericard split off to become Visa in 1976.5 Discover joined the credit card network in 1986.6 Given the novelty of this new invention, naysayers balked at the thought of using anything other than cash, checks, or travelers checks. Today, nearly all of society uses some form of digital payment platform or system for some or all of their financial activities. A few popular payment platforms include, but are not limited to Venmo, Cashapp, Paypal, Apple Pay, Google Pay, and many others.
One of the features of these platforms is the ability to receive, send, and store value with very few interactions with a bank. As these platforms have grown in popularity they serve as proof points that individuals are willing and able to transact in a cashless and digital manner within digital ecosystems that they trust. This trust has been built slowly over time as more and more users join these platforms and users maintain the ability to easily convert their digital currency into cash.
One of the biggest challenges to the integration and mass adoption of a potential CBDC is getting society to trust it. Unfortunately, trust isn’t solely developed by way of functionality; it is also developed by the degree of freedom users receive from utilizing the service. As it pertains to using cash, many people use it because it’s widely accepted, discrete, and they know that it’s backed by the full faith and credit of the United States Government. At EMTECH, our experience has shown that despite how much the public states it wants less interference from the Federal Government in their financial matters, these same individuals would not fully trust the financial system in America without the government’s involvement. The paradoxical nature of this relationship will likely never change. However, it’s important to understand this dynamic to develop a central bank digital currency that, similar to cash, is accessible,easy to use, reliable, and trustworthy.
Building trust is difficult when companies who purport to be frontrunners in the digital asset industry cheat and defraud users out of their hard-earned dollars. To make matters worse, these types of fraudulent activities can severely damage a company’s reputation and erode customer trust. Recent examples like FTX and Celcius have done little to bolster trust in digital assets. The FTX fraud was particularly egregious because it involved the company’s own token, and it was done on its own exchange. This type of behavior risks undermining trust in the world of digital assets and presented another reason why a CBDC must be designed for trust to successfully be a riskless digital asset.
R&D that Should be Prioritized for Digital Assets
While there are several places one could start to focus R&D efforts, we suggest focusing on the two following areas:
1. R&D efforts to address the technical infrastructure changes that should be made to streamline the regulation, creation, and trusted adoption of a U.S. CBDC.
2. Consumer financial behavioral studies to better understand how consumers currently view digital assets, the pros and cons of using them, and how open consumers might be to using a digital currency that is backed by the federal government. In fact, it is also vital to understand the role that newer service providers play working with consumers and traditional financial institutions or systems to deliver trusted innovative goods and services that accelerate the adoption of CBDCs.
In respect to the first point, EMTECH has created an innovative technology platform that helps central banks and regulators deploy actionable digital tools to modernize their regulatory environment and adopt future-proof technical infrastructure. This will enable them to better adapt to the introduction of digital assets, including CBDC and monitor the risks of new digital assets and products being brought to market.
As societies around the world evolve and become accustomed to alternative finance tools, services, and digital currencies, institutions must be able to provide the systems, regulatory frameworks, and technological infrastructure for them to function well. EMTECH is one of the first companies to develop an innovative and scalable solution that equips central banks, banks, and other financial institutions with the tools they need to reduce the friction and complexity of this evolving banking paradigm. EMTECH’s solutions are built for a central bank to allow the U.S. CBDC to be safely distributed via a broad set of service providers that can close access gaps; improve the distribution of government funds; lower the cost for the U.S. Government to ensure disadvantaged communities are not left behind; and have built-in consumer protection and compliance frameworks.
The creation and implementation of a U.S. CBDC could facilitate financial adoption by segments of the U.S. population that have historically lacked access to or trust in traditional banking services, such as low-income families, displaced veterans, and minorities.
If the U.S. CBDC is built natively as digital token that is recorded on public distributed ledger technologies (DLT), it could help invoke public trust because of the transparent, immutable, accessible, and easily transferable nature of such technologies. Moreover, this is possible while preserving user data privacy, user choice of provider, transaction transparency and clear rules for Anti-Money Laundering. Coupled with expanding access to CBDC infrastructure for new financial services providers, the U.S. could achieve decentralized, yet safe, resilient, and inclusive access to the U.S. Dollar.
As stated in the E.O. 14067, “the United States should ensure that safeguards are in place and promote the responsible development of digital assets to protect consumers, investors, and businesses; maintain privacy; and shield against arbitrary or unlawful surveillance, which can contribute to human rights abuses.”
At EMTECH, we are prepared to assist the Federal Government in any capacity that we can to move the United States closer to a trusted digital currency environment. The creation of a U.S. CBDC represents a once-in-a-lifetime opportunity for the United States to revolutionize its payment infrastructure. This will position the U.S. as a leader in this global effort to digitize, track, and expand access to financial services.
Respectfully,
EMTECH SOLUTIONS INC.
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1 https://www.dinersclubus.com/home/about/dinersclub/story
3 https://www.britannica.com/topic/American-Express-Company
4 https://brand.mastercard.com/brandcenter/more-about-our-brands/brand-history.html
5 https://www.forbes.com/advisor/credit-cards/history-of-credit-cards/6 https://www.investopedia.com/terms/d/discover-card.asp
