The future of a U.S. central bank digital currency (CBDC) is in doubt following former President Donald Trump's latest policy decision.

On January 23, 2025, Trump issued an executive order titled 'Strengthening American Leadership in Digital Financial Technology', explicitly prohibiting any federal agency from developing, issuing, or promoting a CBDC. This decision halts all ongoing research and development efforts in the United States.

Legislation to Make the Ban Permanent

Following Trump’s executive order, Senator Mike Lee introduced the "No CBDC Act," aiming to make the prohibition permanent. The bill, if passed, would ensure that no future administration could revive a digital dollar. Lee and other Republican lawmakers argue that CBDCs pose a risk to financial privacy and centralize control over Americans' financial transactions.

"A central bank digital currency would be a dangerous expansion of government power and a direct threat to financial freedom," Lee stated.

Federal Reserve's CBDC Plans Dismantled

Before this shift, the Federal Reserve had actively explored the concept of a CBDC, with projects such as Project Hamilton, a collaboration with MIT, assessing the feasibility of a digital dollar. The executive order halts these efforts and revokes previous directives that supported CBDC development.

Also, Fed Chair Jerome Powell had previously stated that any issuance of a CBDC would require congressional authorization. With the Biden administration having supported CBDC exploration, this reversal marks a significant policy shift.

Why Were Central Banks Interested in CBDCs?

A survey conducted by OMFIF highlighted the key motivations for central banks worldwide to pursue CBDCs.

• 44% of emerging market respondents cited financial inclusion as their primary reason for pursuing a CBDC.
• 50% of developed market respondents prioritized preserving central bank monetary sovereignty, while only 17% of emerging market respondents shared this concern.
• Other motivations included cross-border payment efficiency, domestic payment efficiency, and facilitating tokenized asset settlements.

Despite the enthusiasm for CBDCs, low adoption remained the leading concern. 56% of emerging market survey participants expressed fears that users would not adopt a CBDC, making implementation efforts difficult.

Global Implications: U.S. Withdraws as China and Europe Move Forward

While the U.S. steps back from CBDC development, other major economies continue to push forward. China has been advancing its digital yuan since 2020, integrating it into domestic financial infrastructure and cross-border transactions. Meanwhile, the European Central Bank is in advanced planning for the digital euro.

With the U.S. no longer participating in CBDC innovation, experts warn that other nations may take the lead in shaping global digital currency standards. "This move effectively cedes ground to China and Europe in defining the future of digital finance," said Lewis McLellan, Editor of OMFIF’s Digital Monetary Institute.

Alternative Solutions: Instant Payment Systems Gain Traction

As the U.S. steps away from CBDCs, instant payment systems (IPS) like FedNow are being explored as potential alternatives. The survey revealed that 47% of central banks consider interlinking IPS the most promising way to improve cross-border payments.

Other approaches under consideration include:

• Aligning regulatory frameworks (7%)
• Stablecoins (7%)
• Connecting CBDCs (10%)
• Harmonizing messaging formats like ISO 20022 (10%)
• DLT/shared ledger infrastructure (13%)

Projects such as Project Nexus, which aims to interconnect IPS systems globally, offer a viable alternative to CBDCs. However, challenges such as liquidity constraints and limited access for non-banks still need to be addressed.

What’s Next?

With Trump's executive order in place and the "No CBDC Act" gaining support in Congress, the likelihood of a U.S. CBDC being developed under the current administration is virtually dead. However, as global financial systems evolve, the U.S. may eventually need to reassess its stance to maintain competitiveness in digital finance.