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A bipartisan group in the U.S. House of Representatives is pressing the U.S. Federal Reserve to move faster in creating a national digital currency.
The group fears leadership in digital currencies by China and private cryptos might threaten the U.S. dollar’s position as the world’s reserve currency, The Wall Street Journal reported. (See “China’s Digital Yuan Could Challenge Dollar’s Leadership,” 27 Jul 2021).
Unlike Bitcoin or private cryptocurrencies, a digital dollar would be backed by the Fed.
China’s digital yuan has been circulating for almost a year.
Among the Group of 20 leading economies, 16 are actively developing a digital currency or planning pilot tests, including the European Union, according to the Atlantic Council.
We reported the global trend toward central bank digital currencies in “Look Who’s Minting Digital Currency Now or in the Near Future” (16 Feb 2021).
Although the Fed has studied the issue and is progressing in creating a digital buck, Fed chair Jerome Powell has refused to be hurried in the process, as we noted in “Fed Releases Digital Dollar Report” (25 Jan 2022).
Because of the dollar’s global heft, it is more important to “get it right” than to hurry a digital dollar into the currency marketplace, Powell has said repeatedly.
Powell also has said the Fed will not issue a digital currency without backing from lawmakers.
The House Financial Affairs Committee could vote on authorizing legislation as soon as September, The Wall Street Journal noted.
“I do feel some urgency because other countries are moving ahead,” Rep. James Hines (D-CT) told the WSJ.
The banking industry opposes a digital dollar, saying that it would compete with conventional bank deposits and force banks to raise interest rates on loans.
Advocates point to the convenience of storing dollars on a smartphone, which would speed transactions and eventually make coins and paper bills obsolete, saving resources as well as bother.
A digital dollar also would make transactions safer as well as cheaper to process, they say.
TREND FORECAST: A digital dollar is inevitable, as we noted in “Cryptos Go Mainstream” (21 Sep 2021) and in our Top Trend, “From Dirty Cash to Digital Trash.” The only question is how long the Fed will take to create it and whether rivals in the meantime, most likely China’s digital yuan that is already in circulation, might supplant it while the Fed drags its feet.
“Issuing a [digital dollar] would likely present a major design and engineering challenge that would require years of development, not months,” treasury secretary Janet Yellen said in a 7 April, 2022 speech at American University.
We noted her view in “A Digital Dollar is Years Away, Yellen Says” (12 Apr 2022).
The world will not wait years for a digital dollar, nor will U.S. consumers.
The Fed will accelerate its efforts to create and issue one as other countries outpace the U.S. central bank in claiming a share of the digital payments market.