When you hear about a dollar, you usually think of the standard picture of a bill with a face of an important person in American history. These bills are then kept in the wallet and transferred via hand to another person during payments. But what if this could be done much more simply and securely? Instead of payments taking place offline and money supplies being kept at home or banks, the payments are taking place online and money supplies can be stored online.
As the world is digitalizing at a rapid rate and more transactions are taking place online has resulted in the growing push of lawmakers in the USA to create a digital dollar by the US Treasury (Mearian, 2022). This idea is based on the benefits of a digital currency, such as the elimination of funds transfer waiting periods, fees, and the movement of money across borders by those without bank accounts (Mearian, 2022a).
The electronic dollar is a virtual representation of the US dollar and is therefore different compared to the current cryptocurrency that are around. This E-dollar, as it is named, is coin that is backed by the Federal Reserve Bank and has always the same worth as a real dollar. Which would be safer compared to the current digital currencies. Currently the US is exploring the possibilities of a Central Bank Digital Currency (CDBC) and is planning to set up a pilot program for this digital dollar.
According to the vice chair of Consumer Protection and Financial institutions it is expected that a CDBC would increase inclusion for “Black, brown and low-income communities” to build and sustain wealth (Mearian, 2022). The digital dollar has several benefits, however with these benefits also controversies arise such as that the online currency has an impact on the privacy of the US citizens. People think that the government may use the currency in its benefit to track everyone with their transactions. As beneficial as the currency sounds, it sure does have its drawbacks and therefore the fed should consider in what way they will use the information they gain from the digital cash. Whether they use this in a good or bad way will eventually have a big impact on its success.
References
Mearian, L. (2022, October 13). Would a US digital dollar let the government track you? Computerworld. Retrieved October 17, 2022, from https://www.computerworld.com/article/3676591/would-a-us-digital-dollar-let-the-government-track-you.html
Mearian, L. (2022a, March 31). Lawmakers join growing push to create a “digital dollar.” Computerworld. Retrieved October 17, 2022, from https://www.computerworld.com/article/3655728/lawmakers-join-growing-push-to-create-a-digital-dollar.html
China is also piloting its “e-CNY” recently. I think another consideration in the digital currency is that how to make the public fully aware of digital currencies and how to avoid counterfeit digital currencies that take advantage of the public’s lack of knowledge.
It will be interesting to see if the CBDC (central bank digital currency) will be blockchain based or not. In Europe, they currently analyze the possibilities of different designs. What I do not understand is how the introduction of a CBDC, refering to your digital Dollar, could improve the inclusion of minorities. Furthermore, the control of the Fed on end-consumers depends on the design of the digital dollar itself. If it would be blockchain based, there would be less opportunity to take control. If it is designed similat to the digital fiat money we have right now, then a complete control over all transactions would be possible.
As digital currency is part of the Web3 revolution, which is characterized by decentralization and empowerment of user ownership. On the other hand, It appears that the digital dollar will strengthen the control of the American Government. Therefore, the government will reduce user privacy. Indeed, the American administration will gain significantly more control of payments. It seems that the United States intends to reduce the interest in decentralized crypto-money by developing its digital currency.