The question of digital currencies in one shape or another might not be the biggest issue in the US legislature, but it is never far from the fray either. Recently, two US congressmen asked the chairman of the Federal Reserve to consider the creation of a national cryptocurrency. In their view, the same step is an utmost necessity needed to keep up with the rest of the world. This is not related to the success of bitcoin and other non-centralized, non-governmental digital currencies, but those that are developed and soon to be launched national ones.
Jerome Powell, the FED chairman has previously been very dismissive of this idea and he is by no means alone in this view. Many at that side of the ring are certain that not only is a central bank digital currency or CBDC a bad concept, but also one that can have widespread negative repercussions on the economy by putting pressure on commerce. Yet, French Hill and his bipartisan associate Bill Foster believe otherwise.
The process opens up an interesting debate in the top of the US financial and legislative decision-making circles. It also presents the question – this time from official sources – whether or not the country needs a digital currency, but more importantly, can it even have it in its current state of financial, economic and technological affairs.
The idea behind the congressmen’s initiative is clear – the US risks staying behind in the Fintech race and losing out on many opportunities that their rivals will exploit. Their letter is quoting a study by the Bank of International Settlements that showcases more than 40 countries that are either working on digital currency and developing a blueprint for it. These include a wide selection of locations like Uruguay and Sweden, but most importantly, it also includes China and the PBoC initiative that many economic analysts fear could put direct pressure on the US economy.
This is why Foster and Hill wants to get a clear answer from Powell about the stance of the FED on the possibility of digital currency. Even if his answer is negative, the congressmen are forcing his hand and making sure that the same opinion cannot stay in the undefined space in which it currently resides (apart from knowing that he is slightly against the concept). This way, the same stance will be that of the FED as well, which is again a lot of official information where previously there was not any.
The head of the FED is yet to provide any official response to the letter. However, he did often express his reserve towards CBDSs and the entire concept of digital currencies. Several weeks ago at a conference in Zurich, he stated that these raise a number of big issues. The biggest among them is the problem of cybersecurity. Also, according to Powell, there is no clear indicator that there is truly a demand for any of this.
Right now, customers have a range of payment options at their disposal, so a digital currency is not something that is an absolute necessity. Lastly, he stated something that is very clear but rarely discussed: capitalist countries need private and national banks. With a national digital currency, customers would deal directly with the central bank. That would make the Federal Reserve a direct competitor to the commercial banks.
The Strange Tech Divide
There is a big factor that is weighing down this narrative of the US digital currency – the uneven tech development across the nation. For many outsides of the country, the US might seem like a unified block of a more or less moderately leveled states. Usually, the first associations are those from the seaboards. That is why cities like New York and Los Angeles first pop in mind, even though they represent wildly different perspectives of the US.
However, both of these perspectives offer local environments that are exceedingly successful, rich and tech-oriented. The same image might be true for these huge metropolitan areas, but it is not for the entire US. What is more accurate is the notion that the US is a nation of huge technological differences and even divides and these became especially apparent with the start of the 21st century. For example, many in Europe, even the poorer countries outside of the EU would be stunned to learn that dial-up technology was still prevalent in some American states.
In 2017, a survey suggested that over half of the households in the rural parts of the United States lacked high-speed internet access. In that environment, it is not realistic to expect things like a digital currency consumer base any more than a strong esports scene. Even today, big online retailers sell dial-up modems, even the new generation that simply plugs in using a USB cable. For much of Asia, Europe and the rest of the developed nation, this would be akin to having fax machines in personal homes and regularly using them. In this setting, the idea of a digital currency would hardly find much traction or support.
Is US CBDC Inevitable?
Clearly, at this point, there are many more reasons not to do a US CBDC than those that would demand it. The points that Powell makes are valid ones and refreshingly enough, they all steer clear of the stereotypical talking points of those who are blankly against crypto. Yet, many others have pointed out that like any other tech advancement, a central bank US digital currency is inevitable.
By dragging its feet on development, the US is only ensuring it will get to the party late in the game, but if anyone looks at many other aspects of the modern US government, this is almost universally true. Furthermore, projects like Libra stand a chance of beating the US CBDC to the mark of the national digital currency. While Libra might not be a CBDC it could easily offer all of its functionality. In that case, the US would be beaten both domestically and internationally if PBoC gets its alternative out as well.