It seems many countries were caught off guard at the popularity of cryptocurrency such as Bitcoin. Looking at it from an economic and financial standpoint, you can’t have a currency that fluctuates in value. One of the reasons the dollar is a “global currency” is the consistency of its value; its ability to be used anywhere in the world and its backing by the U.S. government. If you add the risk of cryptocurrency destabilizing a country’s monetary policy, you see a number of incentives for countries to create a government sponsored digital currency.
We live in a world where more and more activities are automated. The payment system seems to be the last frontier. Cryptocurrency such as Bitcoin is a catalyst for countries to develop a government sponsored digital currency to keep up with the trend.
According to the Atlantic Council, 90 countries are exploring digital currency. We are behind. The Fed just published its first report January 14, 2022.
According to a podcast from Marketplace Tech. China is testing out their own digital currency at the Olympics. Smaller countries are offering cryptocurrency options. Some banks and companies are doing the same.
The Fed’s document raises many questions but does little in the way of answering them. The Fed is looking for authorization to pursue digital currency from the legislative and executive branches.
Government digital currency would have to be backed by the full faith and credit of the U.S. government. How digital currency would be distributed, tracked, monitored, and kept safe from criminals are just the beginning of the questions.
How would this work between countries? The reality is the U.S. is behind the game. Other countries are further along in developing digital currency. If we want to participate in a worldwide digital system, we need a seat at the table.
“Fed Explores A Digital Dollar” podcast 2/22/22 Marketplace Tech with Kimberly Adams and Jesus Alvarado.
“Fed Kicks Off Debate On Issuing Its Own Digital Currency,” Reuters, 1/20/22