FX Viewpoint | Stay tuned for a digital USD | Article – HSBC VisionGo

Stay tuned for a digital USD
Finance  ·    ·  7 mins read

  • Central banks are ramping up their efforts to test, design, and study digital currencies; where is the Fed on this journey?
  • Project Hamilton and the Digital Dollar Project could provide some more insights into a potential digital USD shortly 
  • Even if the Fed were to issue a digital USD, full implementation may still be many years away, in our view

Major economies display growing interests in CBDCs, while the US seems to be still far from reaching a consensus on a digital USD

China and Sweden have been leading the way in developing central bank digital currencies (CBDCs) and others are showing greater interest. After a long consultation period, the European Central Bank is now starting to investigate what a digital EUR might look like, with the 2-year investigation phase starting in October 2021. On the contrary, the US regulators seem to be still far away from reaching a consensus on whether the benefits of a digital USD outweigh the costs, or the best way to design it. This indicates that the development of a US CBDC will lag other major central banks, in particular the People’s Bank of China’s e-CNY.

Project Hamilton and the Digital Dollar Project (working with the US authorities) focus on a potential digital USD

Nevertheless, the ball is now rolling. Project Hamilton and the Digital Dollar Project, having some working relationships with the US authorities, are focused on a potential digital USD. The former is a collaboration between the Federal Reserve Bank of Boston (Boston Fed) and the Massachusetts Institute of Technology (MIT), while the latter was cited by the US Senate Banking Committee on 30 June 2020.

The Boston Fed and MIT will release two policy papers, addressing CBDC coding challenges and on economic and design choices this month

Project Hamilton, launched in August 2020, has structured the research collaboration into work phases that extend over 2-3 years. The first phase will involve jointly building and testing a hypothetical CBDC for wide-scale, general purpose use. In later phases, researchers will assess technology trade-offs by coding and testing various architectures to see how they impact the CBDC’s design goals. Two policy papers are scheduled to be released this September, addressing issues on CBDC coding challenges and on economic and design choices (Financial Times, 5 August 2021).

The Digital Dollar Project will launch at least five pilot programmes to explore the future design of a digital USD

The Digital Dollar Project (The Project), a non-profit partnership between Accenture and the Digital Dollar Foundation started in January 2020, aims at encouraging research and discussions on the potential benefits of a digital USD. While the design details are limited, The Project announced that it will launch at least five pilot programmes over the next 12 months to gauge the value of and explore the future design of a digital USD, according to its press release in May 2021. The Project also expects the digital USD to take on the form of a tokenised, bearer instrument (in which no ownership information is recorded), issued by the Federal Reserve and distributed through the two-tier banking system. It argues that a digital USD should be easily accessible to all users, balanced between privacy protection and regulatory requirements, and able to transact offline within a close distance. It would also enhance and protect the USD’s reserve status.

Even if the Fed were to issue a digital USD, we believe full implementation may still be many years away

Currently, the Fed is still undecided over whether it should issue a digital USD, let alone when and what form it would likely take. Even if the Fed were to go ahead, we believe answering these questions will take time – meaning that full implementation may still be many years away.

Disclosure appendix

This document is for information purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Information in this document is general and should not be construed as investment advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on it, consider the appropriateness of the information, having regard to their objectives, financial situation and needs and, if necessary, seek professional investment and tax advice.
Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document and take into account their specific investment objectives, financial situation or particular needs before making a commitment to purchase investment products. 
The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Value and income from investment products may be adversely affected by exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative of future results.
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments (including derivatives) of companies covered here on a principal or agency basis.
Whether, or in what time frame, an update of this information will be published is not determined in advance.
Additional disclosures
  1. This report is dated as at 03 September 2021.
  2. All market data included in this report are dated as at close 02 September 2021, unless a different date and/or a specific time of day is indicated in the report.
  3. HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
  4. You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument or of an investment fund.


This document is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the HSBC Group. This document is for general circulation and information purposes only. This document is not prepared with any particular customers or purposes in mind and does not take into account any investment objectives, financial situation or personal circumstances or needs of any particular customer. HBAP has prepared this document based on publicly available information at the time of preparation from sources it believes to be reliable but it has not independently verified such information. The contents of this document are subject to change without notice.
This document is not investment advice or recommendation nor is it intended to sell investments or services or solicit purchases or subscriptions for them. You SHOULD NOT use or rely on this document in making any investment decision or decision to buy or sell currency. HBAP is not responsible for such use or reliance by you. You SHOULD consult your professional advisor in your jurisdiction if you have any questions regarding the contents of this document.
You SHOULD NOT reproduce or further distribute the contents of this document to any person or entity, whether in whole or in part, for any purpose. This document may not be distributed to the US, Canada or Australia or any other jurisdiction where its distribution is unlawful.
Hong Kong
In Hong Kong, this document is distributed by HBAP to its customers for general reference only. HBAP is not responsible for any loss, damage or other consequences of any kind that you may incur or suffer as a result of, arising from or relating to your use or reliance of this document. HBAP gives no guarantee, representation or warranty as to the accuracy, timeliness or completeness of this document.
Notwithstanding this document is not investment advice, please be aware of the following for the sake of completeness. Past performance is not an indication of future performance. The value of any investment or income may go down as well as up and you may not get back the full amount invested. When an investment is denominated in a currency other than the local currency of an investor, changes in the exchange rates may have an adverse effect on the value, price or income of that investment. Where there is no recognised market for an investment, it may be difficult for an investor to sell the investment or to obtain reliable information about its value or the extent of the risk associated with it.
This document contains forward-looking statements which are, by their nature, subject to significant risks and uncertainties. Such statements are projections, do not represent any one investment and are used for illustration purpose only. Customers are reminded that there can be no assurance that economic conditions described herein will remain in the future. Actual results may differ materially from the forecasts/estimates. No assurance is given that those expectations reflected in those forward-looking statements will prove to have been correct or come to fruition, and you are cautioned not to place undue reliance on such statements. No obligation is undertaken to publicly update or revise any forward-looking statements contained in this document or any other related document whether as a result of new information, future events or otherwise.
The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates and their respective officers and/or employees, may have interests in any products referred to in this document by acting in various roles including as distributor, holder of principal positions, adviser or lender. The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates, and their respective officers and employees, may receive fees, brokerage or commissions for acting in those capacities. In addition, The Hongkong and Shanghai Banking Corporation Limited, its affiliates and associates, and their respective officers and/or employees, may buy or sell products as principal or agent and may effect transactions which are not consistent with the information set out in this document.
© Copyright 2021. The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED. No part of this document may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited.