The Federal Reserve is reportedly considering a digital currency, as the trend of central bank digital currencies spreads worldwide.
Lael Brainard, a board member at the Fed, reportedly gave a speech February 5th in which she pointed as much out.
Brainhard said the Federal Reserve was “conducting research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including the potential for a CBDC (central bank digital currency).”
The question of central bank digital currencies looms large in the cryptocurrency space. How does it affect stablecoins, first of all? Will they even be necessary in a world where digital cash will from the central bank might be the norm?
After all, stablecoins simply bring the power of fiat notes to the blockchain. If central banks, such as the Federal Reserve, decide to do that on their own, what’s the real use case for things like Tether?
Brainhard pointed to a recent study that found that 80% of all global central banks are considering some form of central bank digital currency.
As we’ve discussed before, Bitcoin and other cryptocurrencies will mostly be unaffected by the introduction of CBDCs. If anything, cryptos will become more popular as a result. One question that lingers is how these things will actually be administered. Rightfully, they should be different from a credit card; you should be able to actually hold the digital currency in your phone, rather than just a representation of it tied to some other account. That’s what makes it a digital currency, or digital cash.
Bitcoin In A CBDC World
For its part, Bitcoin isn’t worried about being the native chain for remittances. Plenty in the Bitcoin space are fine with it gaining traction as a “store of value.”
Yet, central banks launching their own digital currencies is supposed to be a way to kill them, at least according to Saifedean Ammous, a Bitcoin proponent and economist. He says that if the government simply does a better Bitcoin than Bitcoin, it could be over.
It’s easy enough to see that Bitcoin, in its deflationary way, will still be attractive even in a world where central banks are issuing digital currencies. Digital fiat is still fiat, which means it will lose value with inflation. Bitcoin does the opposite, over time.
The US joins China, Russia, Iran, and many other countries in considering its own digital currency. China recently reported that its digital currency is coming along well.
For smaller economies, there may be material effects on monetary policy from private-sector digital currencies as well as foreign central bank digital currencies. In many respects, these effects may be the digital version of ‘dollarization,’ with the potential for a faster pace and wider scope of adoption.
What the digital dollar will look like and how it will manifest in our lives is another question altogether. Will people be required to have phones, in order to interact with the economy, in the near future? It seems possible.