Federal Reserve Needs to Issue Digital Dollars

During several last weeks central banks around the world stated that they need to issue their own digital currencies. The U.S. Federal Reserve are going to launch their own central bank digital currencies (CBDC). Reports came from Tunisia, which claimed to introduce its ”e-Dinar”, but later said that it just investigates the possibilities of the move, and more recently form China, which is now testing its CBDC. This means that now central banks regard digital currencies seriously.

Initially central banks resisted the concept, but as cryptocurrencies gained more public support, their viewpoint has started to change. Recently the United Stated Federal Reserve Chairman Jerome Powell said, that the Fed is investigating the possibilities of launching a CBDC. However, he noted that potential material benefits of the currency still need clarification.

There are several reasons why he has changed his mind, displaying warmer attitude towards digital currency.

First is the general transformation of the U.S. society into cashless one. Though demand for cash is still high, and 70% of adult people stated that they use cash for everyday purchases, the Mastercard study made earlier this decade, shows that more than 80% of payments were cashless.

If the society will become cashless, an issue of citizens’ access to the banking system will require a solution. Without any official forms other ways will come into play, such as cash equivalents, substantially influencing pricing and commerce. If central banks fear cryptocurrency because it threatens their monopoly on issuing money, then they will face even tougher problem, when central banks of some other countries issue their digital currencies and then penetrate global economy with it, making their payment system international (the whole process is known as ”digital dollarization”, or, maybe, ”digital yuan-ification”).

A recent report dwells on possible outcomes of the process:

“China could force other countries to similarly go digital. China could mandate payments from nations with Chinese power plants or other infrastructure improvements built under the ‘Belt and Road’ initiative be in the Chinese digital currency. Enormous companies doing business in China could be similarly forced to adopt.”

We can definitely state that central banks around the globe have to take an attentive look at cryptocurrencies, as they transform not only payment systems, but financial and monetary systems in general — and act appropriately, issuing their CBDCs.