Should the U.S. FED Issue a Digital Dollar, Which Could Compete With Banks & Stable Coins?
President Joe Biden’s executive order on cryptocurrencies issued March 09, 2022 outlines the US government strategy to protect consumers, the banks, national security and address climate risks.
Prior to the POTUS executive order for all federal agencies to study crypto and its effects, one government agency In late Jan 2022, in the Federal Reserve released their study on the digital dollar. I wonder if this new EO from POTUS would make the FED redo their research and analysis again.
So What’s Going On Here?
- Existing government regulations or lack thereof
- Political pressure for new government regulation
- The relevance and competitiveness of the USD worldwide
Existing government regulations or lack thereof has become a serious headache for US innovation in the space. Its not like there are no regulations in place on tokens and crypto today but these existing regulations hold back the major co-operations and players in the US economy from moving ahead with cryptocurrencies or stable coins, which in turn is slowing the pace of development of the crypto space in the US and worldwide as a whole.
This has allowed various altcoins worldwide not based in the US flourish as the US is in a lock-jam on what groups usher in the new age. So there is political pressure.
Political pressure for new government regulation, coming from various major players, the problem, these players don’t all agree with each other on how regulations should work. This is making it hard for politicians in DC to take side and act.
For example the White House, US Treasury and Federal Reserve all have different views on the digital assets, which players get involved and how to move forward .
Also the financial institutions are at odds with any plans for a CBDC issued by the FED, and will most likely sue the FED, if they act and move forward with a CBDC, without authorization from congress.
DC is now the crypto “wild west” as our SEC Chair Gary Gensler at the SEC would call it. I would assume an army of corporation lobbyist have be set loose on congress, the problem with these effort is that US corporations are split on how to move forward too. On one hand is the financial institutions who want in and in alone, on the other hand we have the Tech Industry who want in too. This is a serious headache for law makers as they review all sides and interests and have to eventually write the law for crypto.
The relevance and competitiveness of the USD worldwide, Other countries are aggressively pursuing their own forms of CBDC most notably China.
China has plans to be the currency of the world and sees crypto and the current war, the 2022 Russian invasion of Ukraine as an opportunity to realize such ambitions. So far China is taking their best possible steps to achieve that goal, by adding Russia banks to its card networks it has worked on for years, including in communist style banning all crypto In China and introducing their own CBDC and nationalized digital assets. Based on ads I have seen from the recent Olympics in China, you can now directly pay for goods in local stores with CBDC in a digital wallet.
All that said, and with due respect to the economist and alarmist, I believe there is no need to rush or act on CBDC based on the actions of China and the rest of the world.
The dominance of the dollar is based on the transparency of U.S. financial markets and the stability of its monetary policy and if that does not convince you then I would say this on that matter, the country with the strongest military will hold the currency of the world.
So Where To From Here?
Only time will tell, but the US will eventually have a CBDC in some form. Here are some questions to think about,
- When will the US issue the CBDC?
- If the FEDs do issue CBDC who has access to it, banks or direct to consumers?
- Would they work as Stable coins? For example USDT USDC DAI
- What blockchain will host it or does it come with its own blockchain?
- Any fees involved with buying and selling the CBDC?
- Any interest in holding the CBDC?
When they do create one, congress will make new laws for this to happen by giving the FED additional mandates. I think the banking Industry will be involved as the FED are a bit worried the banking industry will collapse with a FED CBDC and no involvement from the banks in play. The reason here is consumers will go directly to the CBDC and skip the whole banking industry as a whole.
Banks may be allowed to issue stable coins backed by a FED CBDC.
Tech Industry in particular new startups projects will be allowed to have crypto assets in some form for payments in their ecosystems.
The whole stock market will be tokenized and end up on a blockchain and merge with the current crypto exchange.
New industries will emerge and some form of financial inclusion will happen but not much in the early stages.
Since the end of World War II, the dollar has been the world’s most important currency. The dollar will remain king in our lifetime if the US military stays on top. Cryptocurrencies and other CBDCs will just compliment the dollar for the foreseeable future.
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