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Is the US Economy Really Switching Over to Cryptocurrency?

Is the US Economy Really Switching Over to Cryptocurrency?
© Copyright Image: DiamCircle

Like many leftist advocates of the digital dollar, experts say the blockchain technology that underpins cryptocurrencies does not require enough centralized trust. They see a forward-looking Ecash solution as a populist tool to combat inequality and make money more democratic by offering a token-based digital currency that stores assets such as a card or parallel account based on ledger technology to ensure that people can hold assets without a central bank.

The adoption of a digital currency offers the opportunity to rebuild parts of the payment system from scratch and enable greater financial inclusion by allowing people without traditional bank accounts to send and receive money. But it could also change the way Americans use money and prompted financial companies to lobby the Federal Reserve Bank of Boston and Congress to slow its creation or at least ensure that it is not canceled. The main banking trade groups have told Congress that a digital dollar is not needed, and payment companies such as Visa Inc and Mastercard Inc are trying to work with the central banks to ensure that the new currency can be used on their networks.

There are also economic concerns, such as the possibility of a digital dollar circulating around the globe, displacing national currencies issued by smaller countries of central banks. Since the introduction of the digital yuan last year, fears have been growing that China could undermine the dollar’s status as a global reserve currency. The Fed has begun developing an experimental digital currency code, and the boards of MIT and the Federal Reserve are studying it and its implications for financial stability.

Wall Street is warming up to the idea of the next big disruptive force… a digital central bank currency on the horizon, but the Federal Reserve is still a few years from developing its own. The Federal Reserve is unlikely to issue an e-dollar anytime soon, but it will be watching the digital currency experiments being conducted by central banks around the world. A digital central bank currency is envisaged by most prominent researchers not only as a cryptocurrency but also by adherents of blockchain technology, who see it as a contribution to unlocking its potential. 

While countries like the Bahamas, China, and Sweden are testing the viability of digital central bank currencies (CBDCs), US policymakers are taking stock. Credit card companies, banks, and even hybrids like PayPal have room to create new currencies. 

The Future of Money…

A digital version of cash in people’s wallets – could overpower the monetary system known to the world for many decades. Governments and financial firms must prepare for the long-term changeover to money by coping with the momentous leap from metal coins to payment cards. Without new standards and international coordination, the financial system could face significant currency problems in the future. 

Mark Carney, former governor of Bank of England and Bank of Canada, has proposed a digital replica of John Maynard Keynes’ idea of Bancor, a supranational currency favored by Bretton Woods. E-dollar blinders, Fed ex-committee chairman and former vice chairman, argue that the US central bank has the power to adopt a digital currency under the authority granted by Congress. A central bank digital currency would offer to hold it for any person, company, or government that has a direct claim to the central bank, rather than holding dollar bills in paper form. 

In a Bitcoin world, governments could borrow and spend Bitcoins. Central banks would still control the currency, just as they control interest rates, but with limited capacity to pump money into the economy depending on the size of their Bitcoin deposits. 

Suppose the dollar replaces local currencies as the preferred exchange medium. In that case, it could affect the purchasing power of dollar-dependent individuals and affect the ability of local central banks to manage their own money supply. In the case of central banks, demand for Bitcoin could push up the price, reducing the likelihood that people will hold Bitcoin and be more willing to spend it – the opposite of what they want after a financial crisis.

Potential losers from digital currencies include financial institutions, both traditional banks and fintech, which could lose deposits if people put their money in central bank accounts. Uninsured savers could suffer if banks fail, and Bitcoin does not accept more expensive credit cards. Smaller countries may fear that people would switch to foreign e-currencies instead of using domestic money, causing chaos at home. 

They can transform geopolitics by providing a channel for cross-border payments and an alternative to the dollar as the world’s reserve currency and the lynchpin of American influence. Governments with e-currencies score with their government guarantees and use them as cheap central payment hubs. 

The United States would be able to monitor and regulate most digital payment flows into and out of the dollar worldwide. The move would be similar to how most money currently works: the bulk of the US dollar would be digital access to bank accounts, similar to digital cash, thereby avoiding intermediation between commercial banks and credit card networks. 

If different cryptocurrencies replace dollars, euros, or yuan, we could end up with a system in which many different private currencies are based on a single medium of exchange. The appeal of this idea is that choosing a currency would suit cryptocurrencies that could compete with each other to win the loyalty of consumers and businesses.

The post Is the US Economy Really Switching Over to Cryptocurrency? appeared first on DiamCircle.

Read more: https://diamcircle.io/media/is-the-us-economy-really-switching-over-to-cryptocurrency/

Text source: DiamCircle

Disclaimer: Financial information and news are not financial advice, read the disclaimer.
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