The United States Federal Reserve has finally decided that it’s time to look into adopting the Central Bank Digital Currency. In a letter to the congress members, US Federal Reserve Board Chairman Jerome Powell stated it is conducting small-scale research to better understand the opportunities and limitations of CBDC.

The importance of adopting this technology was voiced several times in the past when Facebook’s Libra was under regulatory scrutiny in congress.

Senators didn’t necessarily see the importance of adopting a digital dollar, simply because of the strength that the regular USD currently possesses on global markets. However, that does not render the USD untouchable. The global market is free, meaning that the only reason why the USD is a primary choice for businesses is that it’s relatively easy to acquire and transact.

Should there be a new form of currency which is easier to manage and much more lucrative, there will not be a second thought from the largest global manufacturers to switch to it as soon as possible.

That currency can be in the form of the Chinese CBDC, thus putting the dollar in even more danger of losing its financial dominance. We are all aware of the head-to-head battle between the US and China in terms of global trade. Should China acquire this tool first, it’s likely that the US will have much less of a chance to compete with them in the long term.

It doesn’t mean the CBDC is perfect the way it is

The main concern for the Federal Reserve is the legal aspect of the Central Bank Digital Currency.

Jerome Powell, the Chairman of the Federal Reserve Board had questions about the role of the new CBDC. In his words, if the digital currency is used for almost every single transaction in the country, it would require extensive monitoring from the Federal Reserve, thus raising issues about user privacy and various other monetary difficulties.

Why a US CBDC is so important

It is pretty obvious that most of the global business is being conducted by representatives of democratic nations. Thanks to the relatively free market with minor regulations, most global businesses are able to thrive and continue their operations.

This is mostly due to the freedom of the USD. By freedom, I mean that the United States does not have implications of where the USD can or cannot be used. And if there are any sanctions, then they are more than justified in the eyes of the international community.

In the case of China, there could be a much different picture. For example, after the process of transitioning a large chunk of the global trading community into the Chinese CBDC, it’s likely that China will start demanding limitations on using the currency for countries that don’t necessarily see their point of view. This could be countries that don’t recognize the CCP as the real rulers of China, or countries that try to interfere or criticize China for their internal affairs.

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