The US government is currently exploring the options for introducing a Central Bank-backed digital currency. This decision seems urgent as many citizens today now prefer to utilize an enhanced monetary system with fast delivery and higher protection for the user’s privacy. Hence, creating a digital dollar to run on a blockchain seems the most viable solution to this demand. Will the introduction of a digital dollar harm the crypto industry or will it lead to wider Cryptocurrency adoption? What are the advantages and disadvantages of creating a digital dollar today? This work has examined these important questions.
Major steps are taken so far toward introducing a digital dollar in the US today
The fact that more people today have been attracted to the use of the digital form of money has led the US to consider the creation of a digital dollar.
Earlier in January 2022, the Federal Reserve released a white paper on the use of a potential central bank digital currency and other digital assets. Here, the committee highlighted the need to explore other forms of payment available today.
This move was taken further in March 2022, after US Representative Stephen Lynch introduced a bill for the adoption of the digital dollar known as the Electronic Currency and Secure Hardware (ECASH) Act. According to this bill, adopting a digital currency would bring about some important innovations in the financial system, especially leading to advanced financial inclusion, with higher protection for consumer data and privacy.
To test the effectiveness of this digital form of money, the New York Federal Reserve Bank in November introduced a twelve weeks pioneer program that would allow several financial institutions to utilize the digital dollar in making payments during this period. The success of this program will become a remarkable factor that could influence the decision to introduce a digital dollar into the economy.
The present trial program on the use of the digital dollar appears to be the last major step towards the adoption of a digital dollar.
What effects will the US digital dollar have on Crypto if launched?
The introduction of a US digital dollar will bring many positive effects to the crypto market at large.
Having a Central Bank-backed digital currency would solve the problem of the most reliable stablecoins to adopt today. Many countries that have banned the use of stablecoins will now find the digital dollar the best alternative to the use of stablecoins.
Added to this, introducing a digital dollar could lead to a wider acceptance of cryptocurrencies as the digital dollar would be backed by the US government. Other countries too, will be moved to create their own Central Bank digital currency.
Advantages of having a digital dollar
- Provides a more reliable digital payment system.
- Greater acceptability across the globe.
- Not prone to depegging.
Disadvantages of having a digital dollar
- Displacement of the Stablecoins: Introducing a digital dollar could lead to a displacement of all the stablecoins coins existing today. This is because more investors would be attracted to store their assets using the digital dollar which is backed by law and not subject to de-pegging which has been the case with some popular stablecoins today.
- Regulation of cryptocurrencies: Some crypto traders today seem opposed to the creation of a digital dollar as they consider it an easy means for the government to penetrate the crypto industry to regulate it. Thus, having a regulated digital dollar in the market would sooner or later set the standards which every other cryptocurrency will be expected to follow before they can gain approval in the market.