The Fed has announced plans for a central bank digital currency. That could spell trouble for cryptocurrency.
The Federal Reserve outlined plans this morning to pave the path forward on the Central Bank Digital Currency (CBDC). The digital dollar has been in conversation as of late with the growing popularity of cryptocurrency, although the Fed has maintained the position that implementing the currency correctly is of greater importance than implementing it quickly.
Though Powell sees the importance of the technology for the dollar’s future, stating in a video message this morning:
“As the central bank of the United States, the Federal Reserve is charged with promoting monetary and financial stability and the safety and efficiency of the payment system. In pursuit of these core functions we have been carefully monitoring and adapting to the technological innovations now transforming the world of payments, finance, and banking.”
Pressure is on the Federal Reserve to innovate as other countries, notably China and their currency, the Digital Yuan work to do the same. The rapid implementation of the Digital Yuan could be a threat to the already weakening dollars status as the world reserve currency and could be of concern to the Fed.
China has taken a harsh stance on private cryptocurrencies in order to strengthen the use of the Digital Yuan, banning financial institutions from engaging in cryptocurrency related transactions.
The U.S. Government has also been increasingly vocal about the risks and instability regarding cryptocurrencies and will in all likelihood take measures to ensure the digital dollar has a successful integration.
The adoption of digital currency by the U.S. Government could benefit the space by streamlining the adoption of digital currency as a payment system, but it could spell trouble for cryptocurrencies like Bitcoin, Ethereum and more, that were designed specifically to be an alternative to fiat currency.
It has been the stance of the government that cryptocurrencies are a store of value, an asset not a currency and furthermore, highly speculative and too unstable for widespread use. The Treasury Department has already begun to layout stronger enforcement policies, announcing that any crypto transaction over $10,000 will be required to be reported to the IRS.
This morning Powell hinted at what the future of private cryptocurrencies may look like in order to coexist with the digital dollar:
“The design of a CBDC would raise important monetary policy, financial stability, consumer protection, legal, and privacy considerations and will require careful thought and analysis — including input from the public and elected officials.”
In other words, there is going to be serious legislative framework created to bring forth the digital dollar. Policies that could effect the current state of cryptocurrencies, digital transactions and online exchanges, including the way in which financial institutions interact with these assets.
