What would be the impact of a US “digital dollar”?

The president of United States, Joe Bidenordered the Treasury Department study the creation of a digital dollara movement with the potential to change the way money is moved and used around the world.

Before your request actually results in a virtual dollarthere will be numerous important impacts and risks to consider.

What form would a digital dollar take?

It would still be a dollar issued by the Federal Reserve (Fed, central bank) like all the US bills and coins in use now, but in a digital form accessible to everyone, not just the financial institutions.

Unlike money deposited into a bank account or spent through apps like we sell and ApplePaywould be recorded in the accounts of the Federal Reservenot in a bank.

At the same time, the digital dollar would be worth the same as its paper counterpart, a divergence from the cryptocurrencies which currently have highly volatile prices.

Key questions remain unanswered, such as whether a digital dollar would be based on technology blockchain As the bitcoin or if it would be linked to some kind of payment card.

If the government decides to go ahead, it could be “several years” before it becomes possible to use a digital dollar; authorities will have to explore, for example, what technology to use, he said Darrell Duffiean expert in digital currencies at Stanford University in California.

Why launch a digital dollar?

It would reduce or even eliminate transaction costs, since exchanges would no longer go through banks alone, Bank cards or applications that charge commissions on each payment.

Proponents of the idea say it would help people without bank accounts, about 5% of households in United Statesand could facilitate the payment of social benefits.

There are risks such as a system failure or a cyber attackand there are also concerns about privacy, since the government could theoretically have access to all transactions.

The banking system could also be undermined, as banks currently use customer deposits to make loans to others, and with a digital dollar they might have less money at their disposal.

How will global finance be affected?

The international transfersoften time-consuming and expensive to carry out, could be greatly facilitated.

An operation that currently takes two days to be validated could be done in an hour, he explained. Marc Chandlerforeign exchange expert at Bannockburn brokerage.

For Chandler, the geopolitical role of American dollar it would not be altered by the introduction of the digital version.

A digital dollar It would represent “a natural evolution rather than a revolution,” he said, recalling that more than 6.5 billion dollars are already exchanged electronically every day in the foreign exchange market.

Even if China launches a large-scale digital yuan, he said he doesn’t think it will change Beijing’s role in the World economy since “there will always be issues of trust, transparency, (and) depth of markets.”

However, for Stanford’s Duffie, if the United States wants to continue to benefit from the dollar’s status as the dominant currency in central bank reserves and the international paymentsit is essential that the government act with caution.

“The United States will need to ensure that it maintains a leadership position in international forums that discuss standards for making cross border payments with digital currencies“, he pointed.

Can America catch up?

Other countries are already working on digital versions of their own currencies, from the eurozone to India, but “there is no evidence to suggest that being first to market provides significant or material advantages,” he said. Jamiel Sheikhfounder of the CBDC Think Tank think tank.

On the contrary, failure due to unintended consequences, due to its operation and use or other problems can undermine faith in the issuing institution, he noted.

“The overwhelming dominance of the dollar gives the United States the luxury of learning from … other countries,” agreed Cornell University professor Eswar Prasad.

Dollar or cryptocurrencies?

If designed properly, a digital dollar it might be preferable for home use than a cryptocurrency, Duffie opined.

However, for international transfers, he was “skeptical that the big central banks like the Fed or the ECB, those of China or Japangrant accounts in a central bank to people from all over the world”.

If the United States were to do so, he noted, it could wreck the monetary system of small countries whose people would prefer to use the digital dollar instead of the local currency.

Leave a Comment