The potential creation of a US central bank digital currency (CBDC), also known as a digital dollar, has been a topic of discussion for a while now. However, recent comments from Nellie Liang, the undersecretary for domestic finance at the Treasury, suggest that this digital currency could soon become a reality.
According to her, the US Treasury is actively engaging in technological development to prepare for the creation of a digital dollar, which is pending Congressional approval. In this article, we'll explain what the idea behind the digital dollar is and provide you with insights into what its launch could mean for the future of US finance.
The concept of a digital dollar has been discussed for several years but gained renewed attention in 2020 during the COVID-19 pandemic as a way to distribute government stimulus payments more efficiently. Some proposals for a digital dollar involve the creation of a new payment system, while others would use existing payment infrastructure to facilitate such transactions.
Although a CBDC could potentially be a step toward a cash-free US economy, it’s important to note that the current goal of the digital dollar is to complement current payment forms rather than replace them.
The idea of a digital dollar being introduced has a lot of supporters due to its multiple benefits, including:
However, as with any form of payment the prospect of implementing the digital dollar also has potential downsides, namely:
Overall, the introduction of a digital dollar has the potential to bring about significant benefits to the US economy, yet it also poses several risks and concerns that must be carefully considered and addressed before implementation.
While there is still no digital dollar in circulation as of April 2023, there has been a lot of discussion and research dedicated to this topic.
For instance, in May 2021, the US Federal Reserve announced that it would be conducting research on a CBDC, which could potentially take the form of a digital dollar. The Fed has stated that it is exploring the benefits and risks of a CBDC, and is consulting with stakeholders from the financial industry, academia, and consumer groups.
Besides, several bills have been introduced in the US Congress that call for the development of a digital dollar. The proposed bills seek to establish a digital dollar as a form of legal tender and to create a framework for its issuance and regulation.
There are also several private sector initiatives underway to develop this CBDC solution. For example, the Digital Dollar Foundation is a non-profit organization that is working to advance the development of a digital dollar by conducting research, education, and advocacy efforts.
What’s more, after its hypothetical launch, the digital dollar is expected to have a gradual introduction, with limited usage initially, possibly starting with international settlements before being made more widely available. For instance, if the CBDC is adopted, its use in retail consumer settings may come at later stages.
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