US Mulls Launching ‘Digital Dollar’
A top Federal Reserve official raised eyebrows in the financial services world last week by saying that the central bank is stepping up development of a plan that could result in the issuance of a digitized version of the U.S. dollar. In doing so, she indicated that the U.S. is joining a growing movement among major economic powers to rethink how money will be exchanged in the future.
The U.S. would not be the first country to consider launching what is known as a “central bank digital currency,” or CBDC. China is taking a leading role. But the significance of the dollar to global trade and the world economy in general makes the Fed’s interest in the project especially meaningful for the development and acceptance of what would amount to a form of digital “cash.”
Proponents of a CBDC point to a future in which electronic payments between individuals or businesses could be instantaneous and permanent, with no need for a bank to serve as an intermediary, and in which even individuals without access to a bank account could easily receive secure electronic payments.
Doubters express multiple worries, including concerns about privacy, pointing out that the system could give the federal government access to transactions that individuals would prefer to make in private. There are also economic concerns, such as the possibility that a digital dollar circulating freely around the globe could displace national currencies issued by smaller countries’ central banks.
Whether it’s a good thing or not, the possibility of national governments issuing digital versions of their own currencies is gaining traction globally, with China leading the way on a digitized version of the yuan that is already in limited circulation.