On Wednesday, October 16, a top official from the Federal Reserve confirmed that the Central Bank of the United States is actively evaluating the possibility of issuing a digital currency. This report comes amidst the growing fear that the U.S. Dollar will lose its prestige and value of being the world’s reserve currency.
Rob Kaplan, the President of the Federal Reserve Bank of Dallas, was speaking at a local business event in Austin, Texas. Addressing the audience, Kaplan said:
“We have not at the Fed decided to pursue or drive to develop a digital currency, but it’s something we’re actively looking at and debating.”
He also added that the U.S. government will be at risk of suffering higher interest costs if any other alternative or government were to develop a digital currency that gains widespread adoption. It is clear that the entry of big organizations like Facebook in the crypto space has forced government organizations to seriously think about the future of digital currencies.
Facebook’s announcement of Libra in June 2019 has got the Chinese government to accelerate its plans of launching a central bank digital currency (CBDC). This, in turn, has created a spiral effect which has forced other government agencies, and now the U.S., to consider CBDC issuance. Kaplan is a prominent personality working with the Fed’s key monetary-policy committee.
Christopher Giancarlo, the ex-chairman of the U.S. Commodity Futures Trading Commission (CFTC) also proposed the idea of having a blockchain-based digital dollar sanctioned by the U.S. government and lawmakers. In a story published by the Wall Street Journal, the CFTC chairman said that in this “new digital era”, the government should seriously consider digitizing the cash.
Giancarlo envisions having a USD-backed stablecoin for using it in daily transactions domestically and internationally. He proposed running this stablecoin on a blockchain platform that is an upgraded version of the current monetary system.
He suggests that such a program should see participation from the Federal Reserve, commercials banking institutions, technology companies, non-banking intermediaries, and others. Giancarlo also proposed having “trusted, regulated intermediaries to maintain digital wallets and validate transactions”.
Over the last century, the U.S. Dollar has dominated global commerce as a result of which many commercial banks, foreign central banks, and global investors hold assets valued in the USD.
Now, in case of loss of the reserve-currency status, Kaplan anticipates that U.S. government’s interest rates can jump by some $200 billion. Speaking to CoinDesk, Kaplan further added:
“It just reinforces, the dollar may not be the world’s reserve currency forever, and if that changes, and you tack on 100 basis points to $20 trillion, with a relatively short average life, that’s a lot of money. It’s $200 billion a year and all of a sudden we’ve got a tremendous problem here, so it’s something we’re watching very closely.”
Currently, due to the USD dominating the global trade, the U.S. holds an upper edge in global economic and political decisions. Besides, the U.S. also has a considerable say in imposing strict sanctions on regimes found to be corrupt and unfriendly. Kaplan said:
“People around the world are working real hard to try to find alternatives to dollars and dollar infrastructure because the more they’re invested in that, the more susceptible they are to sanctions, tariffs and what’s going on right now.”
He further added: “I still think for the foreseeable future, the dollar will be the world reserve currency, we’re able to refinance our debt at relatively low rates, but I don’t think we should take that for granted.”