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Fed Getting Nervous? Big Efforts on Potential Digital Dollar

Potential Digital Dollar
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EDITOR NOTE: In a competitive scenario, securing “first-mover advantage” without proper resources to bolster and defend your position won’t mean much once a stronger, smarter, or faster rival comes along. But for those who do have the resources to seize and keep it, the one who gets there first may hold an advantage as to shape the arena, perhaps even the rules of the game, and force its competitors to react to its moves, according to its terms. It’s all about seizing the initiative. In the CBDC (central bank digital currency) space, that first-mover is China. And despite our efforts to develop a potential digital dollar, it appears we’re not even in the parking lot yet, let alone the arena itself. The government’s response to the digital yuan threat is almost laughable. The Pentagon, Treasury, and National Security Council are trying to figure out what China’s intentions are. Well, it’s pretty obvious, and it goes beyond exchanging currency for goods. Really, are they serious? Fed Chair Powell asks, “would adding a digital dollar... benefit our citizens and the people that we serve? “ Well, if preventing the dollar from being dethroned from its world reserve currency status isn’t beneficial to Americans, then might he have a better idea? Of course, Powell doesn’t believe such a thing to be possible. Most Americans don’t think so either. A testament to American privilege and entitlement. Besides, the damage done to the dollar and the US economy can be attributed in large part to the government itself. But if Washington was telling the truth--if it truly believed that the dollar’s hegemony is secure--then why is it getting so anxious? 

Federal Reserve Chairman Jerome Powell has said the US central bank is working hard on researching a potential digital dollar, as nervousness grows in some quarters about China's rapid development of its own digital currency.

Powell told CBS's "60 minutes" in an interview aired Sunday the Fed is running a number of technological experiments looking at how exactly a digital dollar might work.

"There are many subtle and difficult policy choices and design choices that you have to make. We're doing all that work."

But Powell said no final decision has been made, adding that it would be an important step that required the involvement of the public and Congress.

US officials are increasing their scrutiny of China's development of a digital yuan, Bloomberg reported Sunday, with some concerned it could be a long-term attempt to dislodge the dollar from its dominant place in the global economy.

Powell told CBS the Fed is evaluating China's digital currency plans, which have been in the pipeline for years and are now picking up pace. Yet he did not say he was concerned about them.

People familiar with the matter told Bloomberg officials at the Treasury, State Department, Pentagon and National Security Council are increasing their efforts to understand what China's intentions are with its digital currency.

A central bank digital currency, known as a CBDC, would let people access central bank money digitally to hold and make payments.

The public can currently only hold central-bank issued money in the form of physical coins and notes, and largely uses electronic representations of cash held at banks or on prepaid cards to make payments digitally or online.

Many central banks think CBDCs could make payment systems considerably more efficient, and see them as a necessary step as the use of clash plummets.

China hopes to be the first major economy to launch a CBDC. It has already begun extensively trialling the digital yuan and the country's central bank is also looking into using the digital yuan in cross-border payments.

Powell said the US currently has lots of different CBDC projects running. "We have a group of people who are doing different software development and that kind of thing. It's a very, very large, complex project."

But he said: "Really, the question is would adding a digital dollar, would it benefit our citizens and the people that we serve? And we don't have an answer to that question yet."

Although China's plans are causing concerns in some quarters, Powell did not sound overly worried.

"We're in a great place with our currency," he told CBS. "We are the world's reserve currency. Meaning that people use dollars even if they have no connection to the United States. They use dollars to pay for things all over the world."

Original post by MarketsInsider

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