Banking News

Former Citigroup CEO urges Fed to adopt digital dollar

digital dollar

Vikram Pandit, who was CEO of Citigroup during the 2008 crisis, has called for the U.S. Federal Reserve to pursue a central bank digital currency (CBDC). He highlighted the challenges of distributing COVID-19 stimulus money and suggests that a digital dollar would be a better route. 

Pandit rapidly rose to CEO of Citigroup in 2007 less than a year after he joined. Given the 2008 crisis fallout, he referred to his five your tenure as “war”. Currently, he runs an investment firm Orogen, which focuses on the intersection of finance and technology.

“For the government to fulfill its role, it needs new infrastructure to act as an effective, efficient underwriter,” wrote Pandit in the New York Times’ Dealbook. He also noted the adoption of other modern technologies by India, Kenya and Singapore. India is known for its national identity system and its related frictionless know your customer tools.

We previously reported multiple efforts to introduce a digital dollar in U.S. legislative bills to distribute the stimulus money. “A digital currency could pave the way for an infrastructure that serves everyone, but it depends on a government that can build a solid, utilitarian foundation to ensure that every dollar — private or public — goes to the right place,” wrote Pandit.

Perhaps tactfully, Pandit did not refer to China, where state media recently mentioned that the soon-to-be-released digital yuan could be used to distribute future COVID-19 relief.

Lending at scale is still viable in a CBDC world

This isn’t the first time Pandit has urged the deployment of CBDCs. Last year he penned a piece in the Financial Times (FT). There he argued that digital currencies “would allow us to unbundle many banking attributes that developed from physical assets.”

Central banks often raise concerns about the potential for CBDC to cause bank disintermediation. They worry that in the absence of banks, the availability of credit could dry up, which in turn would impact growth. In the FT piece, Pandit wrote that “financial services companies would still play a significant role. Market-based finance companies could meet the demand for loans as well as higher rates on savings.” His reference to “financial services companies”, may have been chosen carefully and does not necessarily mean banks. 

He concluded: “Central bankers understand that unleashing competition in this new architecture would be truly disruptive. Competition can create a race to the top or a race to the bottom. Regulators must help point the system in the right direction. Let’s direct innovation to support the system before someone figures out how to bypass it.”

Pandit also referred to Libra and raised doubts about whether it would engender trust. But it has been a key factor in the recent increased focus on retail CBDC by central banks.

And to Pandit’s point, there are already signs of disruptive decentralized finance (deFi) firms that are involved in lending based on stablecoins and cryptocurrencies. And “staking” is another way to earn the equivalent of interest on digital currencies. We recently wrote about a Deutsche Telekom subsidiary that plans to offer staking services, showing that it’s reaching the mainstream.