Advertisement
Advertisement

US Digital Dollar Still on Ice After Latest Fed Meeting

By:
Martin Young
Published: Jul 6, 2022, 03:36 GMT+00:00

The U.S. is falling behind in the race to develop a central bank digital currency (CBDC), and lawmakers appear to be happy with that situation.

dollar crash

Key Insights:

  • The Federal Reserve is in no rush to develop a CBDC.
  • The U.S. lags way behind other countries for crypto regulations.
  • Policymakers see no short-term threats to the dollar from digital assets.

The U.S. is falling behind in the race to develop a central bank digital currency, and lawmakers appear to be happy with that situation.

At an inaugural conference on the dollar’s international role on July 5, Federal Reserve officials and economic advisors discussed digital currencies and whether a digital dollar would benefit the country.

A CBDC would be issued and controlled by the central bank; it would not be in the same category as decentralized cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH).

No CBDC Benefits

The panelists discussed issues such as whether technological aspects of digital assets, including CBDCs, could change the advantages of the USD or reinforce its various roles. Their responses were rather negative, with few benefits seen from digitizing their currency:

“Panelists generally agreed that technology by itself would not lead to drastic changes in the global currency ecosystem, as other factors such as the rule of law, stability, network effects, and the depth of markets are crucial for the advantages held by dominant currencies.”

Commenting on crypto markets, they said that the current landscape is more focused on retail traders and speculation, adding that institutional investment has been constrained by a lack of regulatory framework.

As with its lackluster CBDC ambitions, Uncle Sam also lags way behind other countries with crypto regulations. The Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have been grappling to control the asset class.

The panelists added that CBDC development tends to focus on domestic retail sectors, which is “not a threat to the U.S. dollar’s international status” they said because the “scope of cross-border CBDCs is still quite limited.”

They concluded that digital assets posed no “material threats” to the international roles of the USD in the short term. Furthermore, they added that digital assets could “actually reinforce these roles” in the medium term if new dollar-linked services were structured around them.

The Fed released a report on CBDCs in January, but there has been little progress since then.

The greenback is still the world’s reserve currency, but with its value diminishing due to rampant inflation due to years of Fed money printing, many countries are growing concerned.

China Racing Ahead

Atlantic Council’s CBDC tracker reports that ten countries have fully launched a CBDC, most of which are in the Caribbean.

It also reports that 15 countries, including China, Russia, Thailand, Sweden, Saudi Arabia, and South Africa, are currently running CBDC pilots.

China’s digital yuan pilot is set to continue into 2023, and the government released a digital wallet for citizens to test the asset in January.

About the Author

Martin has been covering the latest developments in the blockchain and digital asset industry since 2017 when he made his first investment. He has previous trading experience and has worked extensively in IT over the past 2 decades.

Advertisement