empty
21.01.2022 06:14 PM
The fate of the digital dollar for the next five years has been decided

Officials of the Federal System did not delay and took a key step in the history of creating their digital currency. According to representatives of the institution, this will help ensure the dominance of the US dollar in the world market. The growing cryptocurrency market has had an impact, with which the central bank is struggling hard. Digital currencies of other countries will also compete.

The fate of the digital dollar for the next five years has been decided

At first glance, the central bank did not make firm conclusions about whether the issue of such a currency was reasonable, and in any case, stated that it did not intend to act without the support of the White House and Congress. So it is unlikely that the digital US dollar will be released in the near future.

This image is no longer relevant

However, note that the 35-page minutes of the meeting on the government-backed digital coin (known as CBDC) marks the Fed's most important action as it seeks to delve deeper into digital assets. In addition, the outcome of the meeting came down to a statement that the monetary policy authority prefers that legislators adopt a separate law allowing the currency.

"The introduction of CBDC will represent a very important innovation in American money," the Fed document says.

The Fed will continue to collect information from public organizations on this issue. The central bank also outlined several potential advantages of the US-backed coin, including the need for the dollar to remain the dominant currency in the international financial system. Representatives also said that CBDC can improve cross-border payments, increase financial accessibility and simplify the use of the dollar in new technologies.

However, the central bank also warned of possible negative consequences, including an outflow of deposits from traditional banking systems and an increase in the likelihood of a more serious raid on financial firms. Privacy is also becoming a cornerstone since the government can have direct access to the transactions of individual citizens.

The report provides few details on how these controversial issues can be resolved and say that the Fed "needs to find an appropriate balance between protecting consumers' privacy rights and ensuring transparency necessary to deter criminal activity."

In addition, the infrastructure of this new system can become a tempting target for hackers. Thus, the Fed's CBDC protection could be "particularly challenging," the report says because it would have "more entry points than existing payment services."

A Fed official told reporters that the central bank will evaluate the next steps after the deadline for comments. However, he did not name the start date of the program.

The most interesting and frightening point of the future strategy is the possibility of participation of companies that are not banks. Thus, the Fed representatives noted that the authority is likely to rely on intermediaries from the private sector, which may be traditional lenders or non-banking institutions, to offer accounts and facilitate CBDC payments, rather than taking on this role.

This is probably one of the most controversial points in the protocol, which, when implemented, can have serious consequences for the dollar and, ultimately, the national security of the United States.

However, in general, the document is the result of Chairman Jerome Powell's decisive turn towards a deeper involvement in digital payment systems in May. A separate document on the technology that can manage the central bank's digital currency is expected from the Boston Fed in February. The latter is necessary because central banks around the world, primarily the People's Bank of China, are rushing with their digital currencies.

Recall that China launched a pilot project of the digital yuan this year and is expected to announce its use at the Winter Olympic Games in Beijing in February. Some experts say that China and other countries that were the first to adopt digital currencies may set standards for other countries, partly because the digital currency systems of different countries will eventually have to coordinate cross-border payments.

This could make the Fed's research important even if the digital US dollar is not launched for many years, as many countries will seek to adapt their systems to integrate with the US.

However, if the yuan takes the lead, and it does, it is more likely that the dollar will have to "catch up", adjusting to existing payment systems, and this will also negatively affect the status of the dollar as a world currency. The greenback may lose this status in two years.

Meanwhile, in the absence of a digital dollar issued by the Fed, private companies have launched their version in the form of stable coins that contain reserves designed to enable the exchange of coins for fiat currency on a one-to-one basis.

It seems that this practice was made possible by the crypto market and, in particular, Defi (a system of decentralized financing on the blockchain). However, unlike the latter, the "stable coins" of companies are deprived of the advantages of the blockchain, such as the guarantee of anonymity and the highest priority of data security. Without state control of reserves, which, however, has its limits, the estimated value of such "stable coins" is questionable. Nevertheless, the phenomenon exists, and before the first serious thefts, it is quite part of the market.

Egor Danilov,
Analytical expert of InstaForex
© 2007-2025
Select timeframe
5
min
15
min
30
min
1
hour
4
hours
1
day
1
week
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

Walgreens on the Rise: Best Day Since 1980 as Other Giants Sink

US Jobs Growth Beats Expectations in December S&P 500 Futures Fall Ahead of US CPI, Earnings Walgreens Set for Best Day Since 1980 After Beating First-Quarter Profit Constellation Brands Slips

Thomas Frank 06:28 2025-01-13 UTC+2

Nikkei and U.S. Futures Sink Quietly: Where to Look for Resilience

U.S. Stock Futures Fall After the Close Nikkei Down 0.9%, Chinese Bond Yields Rise U.S. Payrolls Data Crucial for Bond Market Dollar Surges Near 2-Year Highs, Rising for 6th Week

Thomas Frank 10:18 2025-01-10 UTC+2

Fed signals price risk: Should we expect a new round of inflation?

US private sector job growth slows in December - ADP Fed meeting minutes show growing risk of price pressure Quantum computing stocks fall as Nvidia CEO sees long road ahead

Thomas Frank 07:20 2025-01-09 UTC+2

What lies in store for JPY in 2025?

The yen has once again emerged as one of the worst-performing currencies in the G10 by the end of the year. Since January, its exchange rate against the US dollar

Аlena Ivannitskaya 07:44 2024-12-30 UTC+2

Dow Ends 5-Day Gain, S&P 500 Down: Wall Street Friday Results

Stocks Fall in Broad Selloff; Dow Ends 5-Session Winning Run Dollar Set for 7% Year-Over Gain; Yen Faces Fourth Year of Losses S&P 500's 45 YTD Index Gains All Close

Thomas Frank 07:21 2024-12-28 UTC+2

US 10-Year Treasury Yields Highest Since May: What Does It Mean for Investors?

Weekly Jobless Claims Come in at 219,000, Below Expectations Crypto Stocks Fall Following Bitcoin Losses US 10-Year Treasury Yields Hit Highest Since May Indices: Dow Up 0.07%, S&P 500 Down

Thomas Frank 10:27 2024-12-27 UTC+2

Alibaba $4B Closer to Target, Bitcoin Loses Momentum

Asian stock markets ended Thursday lower, losing some of their previously gained positions. Amid the pre-holiday calm in Hong Kong, Australia and New Zealand, where stock exchanges were closed, market

Thomas Frank 11:51 2024-12-26 UTC+2

Santa Claus Rally Gains Momentum: Nasdaq Climbs 1.35%

Crypto Stocks Rise as Bitcoin Soars Chinese Officials Pledge More Economic Support Fed Outlook Remains in Investor Focus Benchmarks Rise on First Day of Santa Claus Rally Indices Rise

Thomas Frank 06:18 2024-12-25 UTC+2

Court wins and medical breakthroughs: Qualcomm, Lilly set the tone for Wall Street's third positive session

Big tech companies push Wall Street higher Dow, Nasdaq post third straight positive session Qualcomm rises after chip lawsuit win over Arm Lilly rises after sleep apnea weight-loss drug gets

Thomas Frank 12:53 2024-12-24 UTC+2

Inflation falls to 2.4%: Markets respond with gains, but week remains a loss

November PCE figure at 2.4% annualized, below 2.5% forecast Real estate leads S&P sector gains US House to vote Friday to avoid government shutdown Indices rise: Dow 1.18%, S&P

Thomas Frank 06:21 2024-12-23 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.