This is in contrast to other digital currencies, which are not legal tender in the United States. Only certain vendors accept crypto directly, so people may need to convert their cryptocurrency into U.S. dollars before making most transactions. When you use crypto as a form of payment, you also currently create a taxable event, which means you may owe capital gains taxes each time you purchase something with Bitcion or Ether. This is in addition to any sales taxes. With a CBDC, you would only owe any applicable sales taxes, just like you do using physical currency.
How Have Digital Currencies Worked Around the World?
Despite the potential benefits of a U.S. CBDC, it still remains a concept for now. Around the world, other countries are a little further along with digital currencies such as the Bahamas’ Sand Dollar project, which is in production currently, and China’s digital yuan, which is one of the largest CBDC programs and launched a pilot project in 2014.
“They are testing a pilot in five cities. They gave out millions in currency through lotteries just to prove it works,” said Cunha. People who win the lottery receive free CBDC, which they can spend at local shops that accept it.
While it’s not at national scale yet, once China has the platform ready, it will expand through banks and mobile providers, like Alipay. The central banks of China and UAE are also working on a project to use blockchain and CBDC for regional payments between nations. If these projects are a success, they could give more motivation for other nations to create their own CBDC.
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