ING economist: The US has most to lose in war of digital currencies

"If there's anybody that stands to lose in this game, it's really the US," Cocuzzo has said at Blockchain Week 2020 in London. 90% of the world's foreign exchange turnover runs on dollars, meaning it pervades into the economies of almost every country.

This is in light of Federal Reserve chairman Jerome Powell recently stating that Facebook's Libra project "really lit a fire," highlighting the concern the US would have for widespread issuance of digital currencies.

Cocuzzo uses the example of Ukraine, where a lot of domestic transaction are carried out in dollars. "Ukraine is a highly dollarised economy. People use dollars to make purchases as well as hryvnia, the local currency."

In a world where China gives foreign customers and companies access to a digital yuan, this would have a profound effect on the demand for dollars in the FX market. China's plans to issue a digital yuan are well established, apparently having been in the works for some five years and nearing completion.

While the central banks of many other countries have made public their positive intent to issue digital currencies of their own, Cocuzzo argues their plans do not go much further than that. "The attitude towards centrally-backed digital currencies (CBDCs) seems to be, 'Well we're not planning to launch a CBDC, but we will keep an eye on it'.

"If you look at the Bank of Canada, for example, last week they issued a paper saying that they are planning to create a 'CBDC contingency plan'.'" The Federal Reserve however would not adopt a "wait and see" approach such as this, Cocuzzo states. 

For the time being, however, he believes the bank truly leading the way is the Swedish Riksbank, who is piloting a "hybrid model" for a CBDC. This involves a centrally-issued e-krona, harnessing an undercurrent distribution model with different entities entering into the distributed ledger.