According to Bloomberg News, the world’s reserve currency is quite likely to go digital, thereby changing how Americans will be moving and using their money. On Wednesday, the federal agencies from Treasury to Commerce Department were directed by the White House to research several crypto-related topics, including the advantages and disadvantages of a digital dollar. It could mean lower transaction costs for the consumers and greater access to financial markets and systems. However, it could imply a threat to privacy and adversely impact banks in the United States dependent on deposits. But that is possible only if the government can deliver successfully on what might be a controversial or complicated task.
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Bloomberg News reports that the administration in the executive order stated that the digital dollar’s potential to offer support to low cost and efficient transactions, mainly for the cross-border payments, would facilitate greater financial system access for consumers. However, according to the supporters of digital currency, a digital version of the US dollar would provide few perks related to cryptocurrencies, including a faster, safer, and resilient payment system.
Although the new guidance from the White House does not mean that US central bank currency will be in circulation anytime soon, the process will be a lengthy one, and there might be several questions like whether it will ease the prevailing financial system and efficiency. According to critics, the move could allow the government to get access to financial data breaching users’ privacy.
Digital payments already constitute a significant portion of how the consumers in the United States carry out their daily transactions, right from mobile applications comprising Apple Pay to Venmo to payment services, debit cards, and bank transfers. A digital dollar will be no different than keeping money in an electronic account. However, on the back end, how money gets transferred would change in the US financial system on the back end.
Bloomberg News reports that digital currencies of the central bank or the CBDCs are considered a liability for a country’s central bank but not commercial institutions. Consumers would trust less the third-party intermediaries to work as middlemen and directly work with the government to finish certain transactions. It can enable instantaneous settlements and lower fees, and consumers would not have to be concerned about deposit insurance and bank failures. The digital dollar will also help the government fix specific processes faster, like stimulus checks, tax refunds, and offering citizens unemployment benefits.
The main challenge that governments worldwide might face is whether the digital currencies will be able to develop the technology required to perform the task in a streamlined manner, as in the case of the traditional banking sectors. If there are problems related to the rollout, banks might lose public trust.
