What is Digital Dollar? Know all about USA's plan to issue its own digital currency
Digital Dollar: Why in the News?
The United States of America has taken a step towards issuing its own central bank digital currency. The Federal Reserve has recently announced it and also said that it would be releasing the research paper later this year.
The cryptocurrency market has recently suffered a huge crash and various cryptocurrencies have slipped over 25% in 24 hours which is why the timing of the announcement has become significant.
Moreover China has joined multiple countries that have ended the central bank digital currency space which has caused concerns that the US dollar's position may be undermined now.
What is Central Bank Digital Currency (CBDC)
Unlike the privately held cryptocurrencies, the Central Bank Digital Currency would have the Central Bank on its back at all times and thus the Government.
It could mean that only the share of the total dollars in the economy would be converted into a digital form. This would not be available in hard cash.
As per US Fed Chairman Jerome Powell, the central bank has been carefully monitoring and adapting to the recent technology innovations.
"This effective functioning of our economy requires the people to have faith and confidence not only in the dollar but also in all other payment networks, banks, and other payment service providers that allow money to flow on a daily basis," said Powell.
|A cryptocurrency is a digital/virtual form of currency that is secured cryptography. This makes it next to impossible to counterfeit.|
Digital Dollar: Planning and Operation
- The United States Federal Reserve is going to issue a paper in time that would focus on the benefits and risks of a CBDC.
- They would then be seeking public comments on whether they should carry on the plan with the flagged risks or not.
- As per Powell, the process is a deliberative and thoughtful one and is committed to being operational only after considering a wide range of voices on the issue.
- Also before the decision is made, on moving forward, the US CBDC would take into account all the broader risks and opportunities that would be offered.
- CBDC would be designed for general public use and must be a compliment and not any replacement for cash, as per the desires of the FED.
Cryptocurrencies: China's Recent Actions
- A week ago China barred all financial institutions and payment companies from providing the services related to cryptocurrencies.
- It can only mean that the banks and other online payment channels must not offer any service to their clients that involve cryptocurrencies.
- These involve activities like registration, trading, clearing and settlement.
India's stand on Cryptocurrency:
The Government of India has introduced the Cryptocurrency and Regulation of Official Digital Currency Bill 2021.
It is expected to hit the private cryptocurrencies by laying out a regulatory mechanism for them and launch of any new official digital currency.
It was introduced in the budget session in the Parliament but has been held as the Government would have to discuss with stakeholders.