Markets have heard more frequent guidance from the Fed on cryptocurrencies in recent years, and thanks to two curious U.S. representatives - French Hill and Bill Foster - this guidance now includes an enlightening response from Fed Chairman Jay Powell to their letter on a central bank digital currency, or CBDC.Evolving trends force regulators' handsThe infiltration of blockchain into our global financial sector is nothing new, but a few trends have seen these experimental decentralized solutions tackled head-on by authorities.
"Federal bankers have been slow on the uptake, but now realize they must evaluate and assess developments and possible implications. Otherwise, they risk being surprised and unprepared for a changing environment which may include China as a dominant force. A CBDC issued by China would be a major extension of China's influence in the world economy."
The Powell letter is revealingCompelled by concerned lawmakers to indicate which way the Fed is leaning when it comes to its own stablecoin, Powell underlined that the agency currently has no plans to develop a central bank digital currency.
By operating a digital ledger, the Fed would technically be responsible for transaction metadata, and it is not outfitted to protect personal information - nor does it want to be.
"If the US were to issue a digital dollar, it would certainly have far-reaching impacts on the global markets."
"The issuance of a digital dollar by the government would actually prompt the growth of both ecosystems and spur other participants to be more innovative and compliant with a global standard. Competition brings out excellence. Whoever executes it properly, would ultimately earn the same type of digital faith and volume that exists for the US dollar in its fiat form."
Governments must be conscientious custodiansA big issue with a potential government-backed stablecoin is that if the Fed were to impose rules that infringed upon blockchain's basest advantages, people may be more willing and able to put their money into decentralized blockchains instead.A question would then be if the government could somehow shut those blockchains down for being a digital equivalent or a counterfeit.
"Having the federal reserve create a digital dollar could be a double edged sword. On one hand it would be the most dominant and secure stablecoin which could be the greatest catalyst to push mass adoption on a global scale. But on the other hand, the government would have control of the blockchain and perhaps could in real time determine which transactions are sanctioned or prohibited."
The coming years will see central banks around the world make moves toward digital currency in close succession - if not for the immense opportunities the system provides, then simply because China and Libra have changed the aging perception that it cannot be attempted.
Mark Zuckerberg argued in his hearing before Congress that any hesitation would result in China beating them to the punch with a digital yuan - and in no time, he was proven right.
US Fed Weighs Up Potential CBDC as Countermove Against China
Published on Nov 28, 2019
by Cointele | Published on Coinage
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