Is the US going to digital currency and if so when and how will this miracle of digitalization actually happen? Here is some brief analysis.
President Joe Biden today issued an executive order that could lead to the US creating a digital currency. A digital dollar now becomes more real than ever.
Order says a US-issued digital currency could be used to “support efficient and low-cost transactions, particularly for cross‑border funds transfers and payments, and to foster greater access to the financial system, with fewer of the risks posed by private sector-administered digital assets” such as Bitcoin and other cryptocurrencies.
But Biden doesn’t see the future as bright as some people in the crypto industry have hoped.
Will there be a digital dollar?
There are potential risks and downsides to consider, the order says. So Biden ordered federal agencies to prepare a report within six months analyzing the implications.
Also the order gives government agencies a direct instruction to develop policies for managing cryptocurrencies that already exist.
“The rise in digital assets creates an opportunity to reinforce American leadership in the global financial system and at the technological frontier, but also has substantial implications for consumer protection, financial stability, national security, and climate risk,” the White House said.
There is some negative note for miners. The order mentions “negative climate impacts and environmental pollution that may result from some cryptocurrency mining.”
And immediately there is an obvious solution for this problem. There would be no need for mining with a digital currency issued by a central bank, The White House says.
And yes, they are not using the term “digital dollar”, the prefer “central bank digital currency” instead.
What is a Central Bank Digital Currency?
According to the Federal Reserve, a Central Bank Digital Currency (CBDC) “is generally defined as a digital liability of a central bank that is widely available to the general public.”
“While Americans have long held money predominantly in digital form—for example in bank accounts, payment apps or through online transactions—a CBDC would differ from existing digital money available to the general public because a CBDC would be a liability of the Federal Reserve, not of a commercial bank,” the Federal Reserve says.
And as such “a CBDC would be the safest digital asset available to the general public, with no associated credit or liquidity risk.”
Wait a second, these guys are talking about one more stablecoin, you might ask?
And you would be exactly right.
Stablecoins, like Tether (USDT), are pegged to the value of some fiat currency (dollar or euro) and are rivals to Bitcoin and altcoins that are volatile by their nature. 1 USDT always equals $1, no matter what.
But Tether is backed only by promises from the companies that stand behind it. And often there is a doubt that these companies actually do posses the required amount of fiat money to back their stablecoins.
In case of CBDCs, we will have a totally different story. A major difference is that CBDCs would be issued by the Federal Reserve. Theoretically it means you could trust CBDCs just as much as you trust into usual dollars. The backing force is the same after all.
Even more than that, CBDCs wouldn’t replace cash or paper currency.
“The Federal Reserve is committed to ensuring the continued safety and availability of cash and is considering a CBDC as a means to expand safe payment options, not to reduce or replace them,” the Federal Reserve said.
The Biden order clearly states that CBDCs are intended to “maintain the centrality of the dollar in global financial markets and in the global economy.”
Are there any downsides? Yes, of course
For those who are concerned about privacy, it might be the right time to start worrying. Digital currency can be tool for surveillance.
Usual blockchain based cryptocurrencies like Bitcoin aren’t too protective to their users. Blockchain allows to easily monitor transaction history. It means you don’t even need NSA budget or huge surveillance army to follow the transactions all over the globe.
But there are simple ways to keep your wallets safe and anonymous, except for those tied to crypto trading platforms with KYC identification (you can’t be anonymous on Binance or Kraken).
As for CBDCs, it’s a definite farewell to privacy.
Similar to the dollars on your bank account or a credit card, every movement of the crypto dollars will be visible and easily trackable (and identifiable).
Digital currency issued by a central bank can be used as a tool for government surveillance of citizens and control over their financial transactions.
This has been a concern with China’s digital currency announced last summer. And now it is a concern with the digital dollar or CBDC, call it as you wish.
I will dare to say out loud what lots of people have been thinking lately. The US government started looking for ways to control cryptocurrencies years ago. And finally they understood that the only way to control chaos is to be in charge of it.
Why fight Bitcoin and Ethereum if you can give birth to a cryptocurrency of your own? Totally backed and controlled by you, it would be immensely attractive to hundreds of millions of people because of the magic word “dollar” and the Federal Reserve trademark.