If the Federal Reserve is to be believed, there are still no concrete plans for a digital version of the US dollar. Policymakers at the world’s leading central bank are discussing technology, but are not revealing much about their progress.
International role of the dollar
Last Tuesday, the Federal Reserve organized a conference on the international role of the dollar. Here, economic advisors and representatives of the Federal reserve spoke about digital assets and the potential benefits of a Central Bank Digital Currency in the U.S., among other topics.
Interestingly, the panelists agreed that technology by itself, it would not mean drastic changes for the current global money system. A Central Bank Digital Currency is a digital version of government money like the U.S. dollar, British pound or the euro. Unlike bitcoin and ethereum, CBDC’s are centralized assets.
According to the Bank of America, a digital dollar could help the United States protect its status as a world reserve currency. However, the panelists at last Tuesday’s conference were not convinced of this. “In the short term, the panelists see no threat to the international role of the dollar from the angle of digital assets,” the Federal Reserve said in a statement.
China on lead
Around the world, hundreds of central banks are currently experimenting with the technology. It seems that China in particular is a frontrunner with their digital yuan.
In January, the country already launched a digital wallet. The wallet is available for download through the Chinese version of the Apple and Android app stores. This is a notable change, as the app was previously only available through a private link.
With a population of 1.4 billion, China represents a huge test case for digital government money. The head of the Chinese Digital Currency Research Institute, the developer of the project, claims that more than 140 million Chinese had already opened an account by October. Alipay is still the largest payment app in China, where about 90 percent of the population has an account.
What is the benefit of digital government money?
The idea is that digital government money will allow countries to shift to a cashless society. This means that governments will have even more ability to control the population.
The central bank can give people a personal interest rate to encourage spending or vice versa. Furthermore, with the digital yuan, China can also put hard restrictions on the money. For example, that it can only be spent in certain stores.
From that point of view, it is no surprise that precisely a country like China is the first to embrace this technology. In countries like the United States, where freedom has been the guiding principle throughout history, it remains to be seen to what extent this fits in with their norms and values.
In Europe, too, it seems that the decision has not yet been made. Moreover, with high inflation and the threat of recession, central banks have other things on their minds.