Why The Federal Reserve Should Begin To Issue Digital Dollars
Some central banks have expressed their interest in exploring the likelihood of issuing their central bank digital currency (CBDC). False reports had it that Tunisia was about to launch its “e-Dinar” but the government refuted the claims and confirmed it was studying it.
Likewise, the central bank of China seems to be close to becoming the first to issue its own, known as the Digital Currency Electronic Payment system. Hence, central banks have started to become serious about digital currencies.
Central bank officials have been resisting digital assets, but increasing public adoption of cryptocurrency seems to have been changing viewpoints. In recent times, Jerome Powell of the U.S. Fed commented that the Fed is exploring the likelihood of launching a CBDC.
Nevertheless, Powell did not specifically endorse the launching of a CBDC, as he stated that the Fed is yet to identify the potential merits of general-purpose CBDC to implement monetary policy relative to the Fed’s available tools.
Contrariwise, due to some good reasons, Mr. Powell needs to think otherwise and soon initiate the implementation of a USD CBDC.
First, Powell claims that cash demand in the United States is still “robust, but concise signals exist that the country will become a cashless society. For instance, in Sweden, a report says only 13 percent of the population used cash for a recent purchase in 2019.
A report by the Federal Deposit Insurance Corporation in the United States says that cash represented thirty percent of all payments in 2017. Seventy percent of adults in the country said they utilize cash for everyday transactions. According to the results of a study by MasterCard from earlier this decade, more than 80 percent of United States consumer spending was cashless.
People will lack access to a last resort of public money in a digital banking and monetary system that does not have a cash equivalent. The elimination of cash must come with ascertained access to a form of public money. If this is officially unavailable, other instruments will be used informally as cash equivalents, with a remarkable influence on efficiency and effectiveness of pricing and commerce.
If central banks fear that cryptocurrencies present an impermissible threat to their franchise on money creation, then bigger challenges await them when some other central banks in other nations make up their mind to launch their digital currencies, go cashless, and then make their payment systems global for the penetration of the economy of other countries using their CBDC.
An article published in recent times explained the effect of China’s pursuit of such a strategy. Central banks worldwide need to seriously look into what cryptocurrencies can offer to revolutionize payment systems, enable transformative influence on financial and monetary systems and ultimately issue their digital currencies.
Featured image courtesy of Shutterstock. Source: Cryptopress.