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Digital Currency: Closer Than You May Think

By Chris Broussard

It is said necessity is the mother of invention. In a time of pandemic, we have seen new technology rapidly change long-standing practices, meeting new and pressing needs for social distancing and remote operations.[1] In this time of rapid change, we find central bank consideration of digital currencies.[2] Could central bank digital currencies (“CBDC”) along with their private contemporaries, be the next, new technology to drastically change our social and professional experience? This post reviews recent comments from Jerome H. Powell (“Powell”), Chairman of the Federal Reserve, and considers related developments to analyze that possibility.

            What is a CBDC?

While a universally agreed definition is elusive, CBDCs are generally described as a digital form of the fiat currency of a particular country or region, issued directly by its monetary authority without the involvement of a commercial bank intermediary, and inherently backed by suitable reserve assets.[3] By way of comparison, existing cryptocurrencies, such as Bitcoin (BTC), generally transact through largely decentralized blockchains, are not inherently backed by reserve assets, and have been particularly susceptible to price volatility.[4]

On October 19, 2020, Powell spoke to the International Monetary Fund, as part of a session on Cross-Border Payments and Digital Currencies (the “IMF Conference”).[5] At the IMF Conference, Powell explained: “We are committed to carefully and thoughtfully evaluating potential costs and benefits of a central bank digital currency from the US Economy and payment system as well as for its international implications.”[6] The commitment Powell describes is likely motivated by developments regarding both Libra and the digital yuan.[7]

            What is Libra?

Libra is a digital, global payment system and financial infrastructure proposed by the social media company Facebook. The related white paper explains current plans for the Libra project, recently renamed Diem, to be made up of three parts, working together to create a more inclusive financial system.[8] Summarily, proposed parts include a secure, scalable, and reliable blockchain, Libra Coins backed by a Libra Reserve of assets, and governance by the Libra Association and its subsidiary Libra Networks.[9] Libra is a stablecoin, which is a type of digital currency that seeks to stabilize its price by tying its value to that of an underlying asset or collection of assets.[10]

When asked about Libra at the IMF Conference, Powell stated: “I agree that [Libra] highlighted the need to improve cross border payments and generally succeeded in focusing attention on payments related issues including consumer protection, cyber security, and privacy…I do think it has caused regulators to think carefully about the appropriate risk management and compliance expectations for emerging innovations.”[11]

            What is the Digital Yuan?

Libra has compelled central banks to speed up consideration and development of their own digital currencies, likely seeking to roll out offerings before Libra or some other alternative gains traction. Most notably, China has taken significant steps to advance a digital version of its paper currency, which is named the renminbi, with each unit called a yuan. On November 2, 2020, at the Hong Kong Fintech Week conference, Yi Gang, the governor of the People’s Bank of China, advised more than two billion yuan ($299.07 million) has been spent using China’s new digital currency so far across roughly four million separate transactions.[12] On December 5, 2020, Chinese e-commerce firm was announced as the first online platform to accept the digital yuan.[13]

At the IMF Conference, Powell references efforts by central banks, noting: “…something like 80% of central banks around the world are exploring the idea of issuing currency in digital form. The opportunities and risks presented by a CBDC will differ by country and by jurisdiction and the decisions of whether to issue a CBDC will be made by each individual country.”[14]

            Where is the Digital Dollar?

At the IMF Conference, Powell notes the “…main focus [for the Federal Reserve] is on whether and how a CBDC could improve an already safe, effective, dynamic, and efficient domestic payment system.”[15] Likely with reference to Libra, the digital yuan, and other CBDC efforts, Powell further observes, “with payment systems, there are going to be potentially large network effects that create increasing returns to scale meaning that we may well see over time emerging a small number of dominant players and ultimately great difficulty in competing with those players.”[16] Powell, however, seems to conclude, “[w]e think its important that any potential CBDC would serve as a compliment to and not a replacement for cash and current private sector digital forms of the dollar,”[17] and “[i]n fact, I actually do think this is one of those issues where its more important for the United States to get it right than it is to be first.”[18]

           Why Does Digital Currency Matter?

Widespread usage of digital currency likely requires new approaches to analysis of assets, transfers, and financial information. Avoidance actions, for example, under both Florida and federal law[19] involving digital currency, will likely require, among other things, new efforts to access and interpret distributed ledgers[20] and transaction identification (hash and TXID)[21] to trace flow of funds. In the event of a CBDC transfer, there may even be a sovereign controlled centralized blockchain, potentially rendering transaction details inaccessible. The problem of knowing where to look, gaining access, and understanding what you find, is intensified by, among other things, the circumstantial nuance of actual fraudulent transfers,[22] the additional flow of funds and potential good faith implications of subsequent transferees and beneficiaries,[23] and the often transformational nature of cross-border transactions.[24]

Similar complexity exists with respect to potential volatility,[25] which is to say digital currency becoming more or less valuable after receipt, through exchange rates or as a consequence of other market or regulatory fluctuation. In the avoidance action context, for example, this volatility may be material in determining reasonably equivalent value or solvency.[26] Volatility carries additional implications in the tax context as well, wherein, for example, an increase in value subsequent to a transaction may constitute additional taxable income.[27]

Finally, from a basic infrastructure standpoint, means and methods of transmitting to and receiving payment at state and federal courts, government agencies, and even legal and financial professionals, will need to change as currency evolves. There will almost certainly be periods of transition, wherein preferences and capacities simply will not match.

These are just a few examples of potential impacts. The key takeaway: to the extent a legal practice touches or involves money, as all civil practice generally does, that practice will likely be influenced by developments regarding CBDCs and other digital currencies. While most observers see this possibility approaching, they probably anticipate material change is still well over the horizon. Given the current, global pace of necessity driven change, increasing private participation, and extensive central bank consideration, however, the influences of digital currency could arrive sooner than you think.[28]  


[1] Every Zoom meeting, hearing, and conference throughout 2020, stands as testament to this notion.

[2] Paul Wong and Jesse Leigh Maniff, Comparing Means of Payment: What Role for a Central Bank Digital Currency?, Fed. Rsrv., FEDS Notes (August 13, 2020), [hereinafter Comparing Payment] (“The COVID-19 pandemic has also led central banks to think further about potential enhancements to the general safety and efficiency of payment systems, including developing a digital currency, and to the conduct of monetary and fiscal actions.”).

[3] Francesca Carapella and Jean Flemming, Central Bank Digital Currency: A Literature Review, Fed. Rsrv., FEDS Notes (November 09, 2020), (“Though there is no universally agreed-upon definition of CBDC by policymakers or academics, thus far the literature has studied the implications of a central bank liability held directly by the public.”); Lael Brainard, Member Bd. of Governors of the Fed. Rsrv. Sys., Monetary Policy, Technology, and Globalisation Panel at “Monetary Policy: The Challenges Ahead” (December 18, 2019), (“Central bank digital currency typically refers to a new type of central bank liability that could be held directly by households and businesses without the involvement of a commercial bank intermediary.”).

[4] See, e.g., White Paper, infra note 8, at 01 Introduction (“But existing blockchain systems have yet to reach mainstream adoption. Mass-market usage of existing blockchain-based currencies has been hindered by their volatility and lack of scalability, which have, so far, made them poor mediums of exchange.”).

[5] International Monetary Fund Annual Conference 2020, Cross-Border Payments—A Vision for the Future (October 19, 2020), [hereinafter IMF Conference].

[6] Id. (at 09:00).

[7] Lael Brainard, Member Bd. of Governors of the Fed. Rsrv. Sys., An Update on Digital Currencies at Fed. Rsrv. Bd. and Fed. Rsrv. Bank of S.F’s Innovation Off. Hours S.F. (August 13, 2020), (explaining: “The introduction of Bitcoin and the subsequent emergence of stablecoins with potentially global reach, such as Facebook’s Libra, have raised fundamental questions about legal and regulatory safeguards, financial stability, and the role of currency in society. This prospect has intensified calls for CBDCs to maintain the sovereign currency as the anchor of the nation’s payment systems. Moreover, China has moved ahead rapidly on its version of a CBDC.”).

[8] Libra Ass’n Council, Official Libra White Paper, June 2019, [hereinafter White Paper]; but see Press Release, Diem Ass’n Council, Announcing the name Diem. Executive leadership in place in preparation for launch (December 1, 2020), (“The Libra Association announces the adoption of a new name and the recruitment of key executives, reinforcing its organizational independence. Now transitioning to the name ‘Diem’, which denotes a new day for the project, the Diem Association will continue to pursue a mission of building a safe, secure and compliant payment system that empowers people and businesses around the world.”).

[9] See, e.g., White Paper, supra note 8, at 02 The Libra Payment System.

[10] See, e.g., White Paper, supra note 8, at 04 Economics and the Libra Reserve (explaining: “Each stablecoin on the Libra network will be fully backed by a Reserve of high-quality liquid assets and supported by a competitive network of resellers and exchanges buying and selling each coin.”); See, e.g., Comparing Payment, supra note 2 (describing Libra and stablecoins at footnote 13 and accompanying text).

[11] IMF Conference, supra note 5, at 11:34.

[12] Spending with China’s digital yuan around $300 million, PBOC says, REUTERS Nov. 2, 2020, (discussing Hong Kong Fintech Week 2020, Central Banks in the Digital Economy (November 2, 2020),

[13] becomes first online platform to accept China’s digital currency, REUTERS Dec. 2, 2020,

[14] IMF Conference, supra note 5, at 09:44.

[15] IMF Conference, supra note 5, at 10:39.

[16] IMF Conference, supra note 5, at 42:53.

[17] IMF Conference, supra note 5, at 11:20.

[18] IMF Conference, supra note 5, at 28:47; see also IMF Conference, supra note 5, at 28:40 (explaining: “We’re taking a multidisciplinary approach to these issues, bringing together economist, policy analysts, technologists, lawyers and others to tackle the subject from multiple angles.”).

[19] See, e.g., 11 U.S.C. §§ 501-562 and Fla. Stat. §§ 726.101-201. 

[20] See, e.g., Comparing Payment, supra note 2 (explaining: “Distributed ledger technology (DLT) has the potential to allow a broad range of participants to update a shared, synchronized ledger, a departure from traditional payment systems that rely on a single entity managing a centralized ledger”).

[21] See, e.g.BDI Capital, LLC v. Bulbul Investments LLC, 446 F. Supp. 3d 1127, 1131–32 (N.D. Ga. 2020) (“Transferring bitcoins entails two keys, a public key and a private key. Both are large strings of numbers that are mathematically linked to the wallet address. The private key is used to mathematically derive the public key, which is transformed with a hash function to produce the address that other people can see. Any bitcoin transfer thus creates a transaction ID (TXID)…” (internal cites and quotation marks omitted)).

[22] See 11 U.S.C. § 548(a)(1)(A) and Fla. Stat. § 726.105(1)(a); see also In re Bifani, 493 B.R. 866, 870 (Bankr. M.D. Fla. 2013) (“…actual fraud is seldom proven by direct evidence. Instead, it is often proven through circumstantial evidence. To determine whether circumstantial evidence supports a finding of actual intent, courts looked to the badges of fraud adopted by the Eleventh Circuit. Those badges of fraud are codified [at Fla. Stat. § 726.105(2)].” (internal cites and quotation marks omitted)).

[23] See, e.g., 11 U.S.C. § 550(a), (b); In re Rollaguard Sec., LLC, 591 B.R. 895, 907 (Bankr. S.D. Fla. 2018) (“Section 550 allows a trustee to recover the fraudulently transferred property from the initial transferee, the entity for whose benefit the transfer was made, or a subsequent transferee of the initial transferee.”); see also In re MAS Glob., Inc., 3:12-BK-6289-JAF, 2019 WL 3948423, at *4 (Bankr. M.D. Fla. Feb. 1, 2019) (“Section 550(b)(1) provides that a trustee may not recover proceeds of an avoided transfer from a subsequent transferee who takes the property for value, including satisfaction or securing of a present or antecedent debt, in good faith, and without knowledge of the voidability of the transfer avoided.” (internal brackets and quotation marks omitted)).

[24] For example, in cross-border financial transactions, currency may be converted to local currency as part of the transfer. See, e.g., White Paper, supra note 8, at 04 Economics and the Libra Reserve (explaining the Libra “…could operate as a settlement coin in cross-border transactions, and people and businesses could convert the ≋LBR they receive into local currency to spend on goods and services through third-party financial service providers.”).

[25] While CBDC ties to reserve assets and regulatory oversight seek to mitigate price volatility, it is not entirely certain those efforts will be successful or that a plurality of CBDCs, stablecoins, and cryptocurrencies will effectively co-exist. In other words, there exists potential for significant and enduring volatility.

[26] For example, balance sheets, which, by their very nature, provide a snapshot of assets, liabilities, and equity as of a certain point in time, may not provide as reliable a predictor of asset valuation or solvency when digital currency and its propensity for volatility, comprises an increasing portion of the assets column. See, e.g., 11 U.S.C. §§ 547(b)(3), 548(a)(1)(B) and Fla. Stat. §§ 726.105(b), 106.

[27] See, e.g., Internal Revenue Service, IRS Virtual Currency Guidance Notice 2014-21, 2014-16 I.R.B. 938 (2014) (explaining: “In general, the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability.”); Zietzke v. United States, 19-CV-03761-HSG(SK), 2020 WL 264394, at *2 (N.D. Cal. Jan. 17, 2020) (Citing Notice 2014-21 to explain: “General tax principles applicable to property transactions apply to transactions using virtual currency. Cryptocurrency is, therefore, taxed according to the gain or loss that taxpayers realize when they sell or exchange cryptocurrency.”).

[28] In recognition of the abbreviated format of this writing, research and analysis contained herein is intended as merely introductory and should not be read or construed as exhaustive or complete.

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