Are you still familiarizing yourself with the digital currency? This also applies to central bankers.
The question is whether the new technology will make the yuan an attractive alternative to other currencies. Chinese central bankers say it is not an attempt to replace the dollar, and Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics, said digitization would not fix issues that made the yuan unattractive as a reserve currency at all – like capital controls, which means that you cannot simply exchange it at any time.
Is Bitcoin Coming For The Dollar?
Others fear that private-sector innovations such as Bitcoin or “stablecoins” backed by a bundle of assets or currencies could become an attractive alternative to state-created cash if the central banks don’t keep up.
Mr Powell has argued that Bitcoin is more like gold than the dollar. It has value because it’s rare and people want to keep it so that sometimes it can even be exchanged for other goods and services, but it’s not government guaranteed money.
But global regulators have slowed Facebook’s stablecoin project, originally known as Libra and now called Diem, because of concerns about the potential for money laundering and disruption to the financial system.
Mr Powell said in a testimony last year that the Libra was “a little wake-up call that this is coming quickly and could come in a way that is fairly widespread and systemic,” stressing the “importance of making rapid progress.” . “
If tech companies dominate the payment system, it could lead to privacy and stability issues. In fact, China’s digital yuan has been tracked in part in response to the rise and dominance of private sector digital payment platforms like Alipay and WeChat Pay.
A faster or instant payment system like the FedNow instant payment technology that the Fed is currently developing could keep the Fed updated without changing the system as much as a digital currency would. But fans of the digital dollar say it’s about preparing for the future – and the future could be the central bank’s digital currency.
“Digital cash could be a real game changer if it is built right,” said Neha Narula, director of the Digital Currency Initiative at MIT and working with the Boston Fed on her project.