98 NOVEMBER / DECEMBER 2022 The US Dollar and Central Bank Digital Currencies FEATURE As the payment system continues to evolve rapidly and the volume of digital assets continues to grow, it is critical to ensure that we keep both the benefits and risks of digital assets in the policy conversation, including the implications for America’s role in the global economy and its place in the world. My speech today focuses on exactly this issue and on an aspect of the digital asset world that is now the center of domestic and international attention - central bank digital currencies and how they relate to the substantial international role of the U.S. dollar.1 In January 2022, the Federal Reserve Board published a discussion paper on CBDCs to foster a broad and transparent public dialogue, including the potential benefits and risks of a U.S. CBDC.2 To date, no decisions have been made by the Board on whether to move forward with a CBDC. But my views are well known. As I have said before, I am highly skeptical of whether there is a compelling need for the Fed to create a digital currency.3 I am not a national security expert. But one area where economics, CBDCs and national security dovetail is the role of the dollar. Advocates for creating a U.S. CBDC often assert how it is important to the long-term status of the dollar, particularly if other major jurisdictions adopt a CBDC. I disagree. As I will discuss, the underlying reasons for why the dollar is the dominant The following is a transcript of a speech delivered by Gov. Christopher J. Waller of the Federal Reserve Board of Governors at “Digital Currencies and National Security Tradeoffs,” a symposium presented by the Harvard National Security Journal in Cambridge, Massachusetts, on Oct. 14, 2022. currency have little to do with technology, and I believe the introduction of a CBDC would not affect those underlying reasons. I offer this view, again, in the spirit of dialogue, knowing how important these issues are, and I am very happy to engage in vigorous debate regarding my view. I remain open to the arguments advanced by others in this space. The Role of the U.S. Dollar After World War II and the creation of the Bretton Woods system, the U.S. dollar served as the central currency for the international monetary system. Other countries agreed to keep the exchange value of their currencies fixed to the dollar, and eventually, countries came to settle international balances in dollars.4 That role has continued long after the Bretton Woods system dissolved. By any measure, the dollar is the dominant global currency—for funding markets, foreign exchange transactions, and invoicing. It also is the world’s predominant reserve currency.5 In terms of the dollar’s reserve currency status, 60% of disclosed official foreign reserves are held in dollars, far surpassing the shares of other currencies, with the majority of these dollar reserves held in safe and liquid U.S. Treasury securities.6 Even in a world of largely floating exchange rates, many countries either implicitly or explicitly anchor their currencies to the dollar; Christopher J. Waller Governor Federal Reserve System
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