Donald Trump Bans CBDCs in US: What it Means for the Economy? All Details Here

US President Donald Trump has banned the creation and issuance of Central Bank Digital Currency (CBDC) in the United States of America. Trump, on occasions, during his presidential campaign mooted to ban CBDC after assuming office. According to an order, CBDC has been defined as “a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the central bank.”

Citing risks related to privacy, sovereignty, and financial stability, the latest executive order is against the adoption of CBDC. On the other hand, the decision advocates dominance of private parties in controlling the functionality of the digital asset ecosystem, while laying special emphasis on dollar-backed stablecoins as an alternative to CBDCs.

As per Trump’s order, agencies are barred from taking any action to establish, issue, or promote CBDCs within the jurisdiction of the United States or abroad. The order read, “Except to the extent required by law, any ongoing plans or initiatives at any agency related to the creation of a CBDC within the jurisdiction of the United States shall be immediately terminated, and no further actions may be taken to develop or implement such plans or initiatives.”

The executive order also aims to establish a presidential working group, which is expected to regulate the framework of digital assets, including stablecoins. The group will also assess the market structure, while laying strict emphasis on risk management and consumer protection.

Notably, the recent order has given out a new definition of digital assets extending it to cryptocurrencies including Bitcoins, tokens, and stablecoins. Currently, the US holds 198,109 Bitcoin, which is valued at $20.1 billion. Additionally, Trump is also set to create a strategic Bitcoin reserve.

What is CBDC?

CBDC is a type of digital currency that is issued by the country's central bank. The value of this digital currency is dictated by the central bank and is equivalent to the country's fiat (formal) currency. Over the years, several nations have brought CBDCs, which are controlled by one central authority. Trump’s order focuses on easing the burden of government and bringing in private players into the digital currency system.

The order also promotes stablecoins whose value is directly tied to the country’s currency. Notably, stablecoins could act as an alternative to CBDCs, thereby supporting the digital economy without government’s direct involvement. The move will shift focus from government-controlled CBDCs to private-sector digital assets, ensuring dominance of US dollars through stablecoins and other crypto innovations.

The US is looking forward to maintaining dominance of the US dollar by using private-sector solutions instead of government-issued digital currencies, which will in turn create a competitive environment among nations who have been promoting CBDCs. Nations including China, Brazil, South Korea and the UAE have been developing CBDCs, while Bahamas, Nigeria, and Sweden have already developed their CBDCs.