Representatives of the US Congress are interested in the Federal Reserve creating a Dollar equivalent digital currency. This is based on a letter addressed to Fed chair Jerome Powell from two house representatives French Hill (R-Ark.) and Bill Foster (D-Ill.) who are advising his bank to consider creating a dollar digital currency if it’s not doing so already.
The letter is written with an inquisitive tone with the intention of bringing the matter to the Fed’s attention.
“The Federal Reserve, as the central bank of the United States, has the ability and the natural role to develop a national digital currency,” the representatives wrote. “We write today to hear your views regarding this issue at this critical juncture.”
The letter comes at the back of a backlash over Facebook’s plans to develop a fiat-backed cryptocurrency that will be used for payments across the world. Dubbed Libra, Facebook released its whitepaper late June to immediate criticism from US regulators and lawmakers alike. They went as far as asking Facebook to agree to a moratorium on the development of the stablecoin. However, Facebook’s Libra is not the only threat to the dominance of the US dollar.
In the letter, the Congressmen state that they are “concerned that the primacy of the U.S. Dollar could be in long-term jeopardy from the wide adoption of digital fiat currencies.”
The lawmakers are afraid that the US will be left behind if it does not develop its version of a dollar stablecoin similar to China’s recently revealed stablecoin.
“Internationally, the Bank for International Settlements conducted a study that found that over 40 countries around the world have currently developed or are looking into developing a digital currency.”
It is now becoming more obvious that cryptocurrencies – whether backed by the government or not – are here to stay. Several countries are either researching, developing, or already testing their versions of central bank-issued digital currencies (CBDC) that will compete with the public chain cryptocurrencies such as Bitcoin. Despite their first-mover advantage, public chain cryptocurrencies such as Bitcoin and Ethereum lack the endorsement of governments. If a government launches a competing digital currency, they can easily push for its adoption as its stifles that of other currencies.
Cryptocurrencies are slowly becoming more dominant as they gain adoption and as rightly stated in the letter, it is urgent for the Federal Reserve to launch its CBDC.
“With the potential for digital currencies to further take on the characteristics and utility of paper money, it may become increasingly imperative that the Federal Reserve take up the project of developing a U.S. dollar digital currency.”