The US Needs To Prepare For Digital Currency Developments – – Daily Cryptocurrency and FX News

The US Needs To Prepare For Digital Currency Developments – – Daily Cryptocurrency and FX News

In case the US is not yet ready for central bank digital currency (CBDC), it will remain on the sidelines of financial and tech innovations. In this world of CBDC, big nations like China and small countries like the Bahamas are striving relentlessly to mark their presence.

This is a world where 86% of the global central banks are trying to develop digital currencies. Nearly 60% of these central banks are working on the concept and 14% have so far introduced a pilot program.

CBDC In A Global Perspective

A CDBC is designed to act as the digital version of a national currency that can be exchanged everywhere in the world. Unlike the fiat national currency, you can store a digital currency on your smartphone to acquire anything you want.

Today, five countries have already introduced their digital currency. In that context, the Atlantic Council is convinced that up to 81 countries, which contributes to 90% of the world’s GDP, have now started researching digital currency. Analysts and experts believe that this is just the beginning.

Based on a Bank for International Settlements (BIS) survey that was published in January 2021, there might be a boom in the digital currency space in the coming years. BIS said that countries that comprise 20% of the world’s population will launch a digital currency soon.

Currently, China is at the top of this league. So far, they have already made at least $5 billion worth of transactions with its CBDC, the digital yuan. Some people fear that this move will enable China to get an edge over the US dollar’s status.

But how can you use central bank digital currencies? Experts say that there are various ways to use this payment technology. This digital money can buy necessities like medical supplies and food. Nonetheless, it is best if digital currency is not used to buy cigarettes and alcohol.

Digital currency is believed to come in handy during a pandemic. It may help in delivering government aid quickly through digital wallets. Moreover, it can help the government stop some malpractice that is seen while using fiat currencies.

Is America Ready To Join The CBDC World?

The United States Federal Reserve is currently doubtful about the efficacy of central bank digital currencies. It seems like they are still years away from developing their digital dollar currency. In the meantime, based on a Bank of America report, the digital currency might make the US dollar remain majorly competitive when compared to other major global currencies.

The U.S. House Committee on Financial Services held a major hearing on the benefits and shortcomings of CBDCs. Most of the people who attended this hearing, including Julia Coronado of MacroPolicy Perspectives, expressed their views that the United States has to be keener and take a leading role in central bank digital currency.

China is currently leading the race and other nations are also making massive progress. In case America continues to maintain its laid-back attitude about digital currency, it might lose the opportunity to decide the future of digital currency.

What Makes America Skeptical?

One of the possible reasons why America is not implementing proactive steps about digital currency is because the US dollar is still dominant on the global scene. However, what America does not understand is that CBDCs can eliminate the US dollar from its top position as the global reserve currency in the coming years.

A digital currency can eliminate the hiccups for nations making financial transactions with one another directly. They will not have to depend on the US dollar anymore. One reason the dollar is dominating the world is that it is a reserve currency. Most people use it for convenience.

However, with the emergence of digital currency, the people may decide to enact a direct settlement between trade pairs. The dollar is a critical part of America’s foreign policy. On its part, the federal government can bar sanctioned nations from the dollar-based system.

Today, everything depends on the United States. In case the nation does not introduce its CBDC, it might not get adequate information on cross-border transactions in the future. If the other nations use digital currencies for their transactions, they might not have to use the Society for Worldwide Interbank Financial Telecommunication network, a network that America may supervise.

What Can The United States Do?

There is one shortcoming of digital currency, and that is the lack of privacy. Most Americans may not like the fact that the government can easily monitor transactions made with digital money. The United States government may play a major role in increasing this concern. It may develop a digital currency that will not lead to privacy infringement. Chris Giancarlo, the co-founder of the Digital Dollar Project, said:

“If this is going to be the tech of the future, we want to make sure the U.S. brings democratic values to bear.”

The Takeaway

A close inspection of today’s scenario indicates that digital currency is here to stay for the long term. Digital currency can help various central banks to coordinate with people directly. It can prove extremely helpful during times of crisis.

The massive use of digital currency might slash the operating cost of the global financial sector. It might become the most convenient way to execute financial transactions and push the world towards a cashless economy.

Will CBDCs eliminate cash? Well, it is too early to project, since cash remains the most private form of money. Central banks do not recommend total elimination of cash. Will it replace Bitcoin and other cryptocurrencies?

The main difference between central bank digital currencies and cryptos is that CBDC is a digital government currency, while cryptos are non-governmental digital currencies. Currently, CBDCs are not likely to replace crypto, which is quite convenient for private transactions, even though it is unregulated and vulnerable to hackers.

Here comes the big question: what happens to America’s position in the CBDC world? The answer is just simple; in case America is not ready for digital currency, it will remain on the sidelines. It will lose an opportunity to create a digital currency that is democratic and has a major focus on privacy. Michael Sung of the Fudan Fanhai Fintech Research Center in Shanghai mentioned:

“You’re going to see a massive transformation of the international monetary system.”

If this happens and the world sees widespread use of digital currency, the value of the United States dollar as a global currency will plunge. If America is smart enough to act now and develop a digital dollar, it might bring in nearly 14 million unbanked U.S. adults into the financial system.

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