Federal Reserve is exploring whether it makes sense to issue its own digital currency
|In a letter sent to U.S. Representatives French Hill and Bill Foster, it was observed that the Fed are looking into whether a digital currency is worthwhile for businesses and households.
Jerome Powell, who is the Chairman of the US Federal Reserve, explained that they are exploring whether it makes sense to issue a Central Bank Digital Currency (CBDC).
If it is designed to be financially transparent and provide safeguards against illicit activity, a general purpose CBDC could conceivably require the Federal Reserve to keep running record of all payments data using the digital currency […] and sometimes that raises issues related to data privacy and information security
We have assessed and we continue to carefully analyze the costs and benefits of pursuing such an initiative in the U.S
This all comes as stablecoins like Tether (USDT) become more and more popular. In terms of trading volume Tether has recently overtaken all other cryptocurrencies by volume traded.
This is a worry for the Fed as Tether is pegged to the US dollar and if it becomes even more popular it may be used as a replacement. Powell said:
We are concerned that the primacy of the U.S. Dollar could be in long-term jeopardy from wide adoption of digital fiat currencies
The issue with this is that is stablecoins have no intrinsic value compared to the US dollar. ie. if people trade with Tether it will push USD transactions down and USD exchange rates down against other currencies. Tether and the dollar will not then be measured with true value of the volume and flow of the USD. This would then devalue Tether and the USD against what ever instrument it is traded against. Food for thought.....
If stablecoins become more popular the Fed might have to act in the digital space or make stablecoins more dificult to trade with.
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