A Thursday report indicated the Federal Reserve is inching towards the possibility of launching a U.S. digital currency.

Background: The report comes amid an explosion in the market for stablecoins, cryptocurrencies whose prices are pegged to an external asset such as the dollar. The private companies issuing those tokens market them as a safer alternative to other, better-known cryptocurrencies, such as Bitcoin and Ether, that have experienced wild price gyrations. At the moment, stablecoins are primarily used by investors to facilitate trades among different crypto assets. But their backers argue they hold the potential to become a widely adopted means of payment. (per The Washington Post)

What’s The Catch: According to top regulators, “stablecoin issuers lack adequate controls on the size and quality of their reserve holdings, inviting the risk of a sort of bank run if there’s a sudden demand for redemptions.”

What The Fed Says: Federal Reserve Chair Jerome H. Powell says that stablecoins and a U.S. digital dollar would be able to coexist.

According to the Federal Reserve’s report, a digital currency could, “spur innovation by banks and other actors and would be a safer deposit substitute than many other products, including stablecoins and other types of nonbank money.”

What Advocates Say: Individuals in favor of creating a U.S. digital currency say that the move is needed to remain competitive. Last year, China released its first digital currency

More liberal advocates also say a digital dollar would provide the opportunity to extend benefits to lower-income Americans.

Advocates also noted that a digital dollar would help Americans who don’t have bank accounts be able to get cash quickly. The federal government struggled to give Americans without bank accounts their pandemic relief funds

What Critics Say: Banks are concerned that if the Fed opens doors to offer banking services to Americans it will drain markets and destabilize financial markets.

What Comes Next: In the Federal Reserve’s report it noted that it would only move forward with a digital currency with “clear support” from Congress and the executive branch.

The report also noted that digital currency is not meant to replace physical cash.

(Visited 3,382 times, 1 visits today)