In the News

Bitcoin Investor: Only a Matter of Time Before the Federal Reserve Goes Crypto

BlockOnomi
10/17/19

If you’ve followed the cryptocurrency news cycle at all over the past few months, you likely have noticed the trend of central bank digital currencies (CBDCs).

With the launch of Facebook’s Libra, which is slated to become a global digital asset used by hundreds of millions of distributed users, governments and their respective central banks have been mandated to maintain monetary hegemony.

Proposed solutions to combat Libra are, of course, CBDCs, which would allow central banks and commercial banks to retain control over money issuance and financial services, respectively.

While central banks like China’s People Bank of China, the Eurozone’s European Central Bank, and even Canada’s Bank of Canada have all thrown their hats into the CBDC ring, one player has remained relatively silent: The United States’ Federal Reserve.

Previously, the Federal Reserve’s former chair, Janet Yellen, bashed Bitcoin and the idea of a sovereign cryptocurrency.

Despite this, an analyst thinks it is only a matter of time before the Federal Reserve brings the dollar on chain.

Digital Dollar Is On Its Way

Finance is going digital — there’s no doubt about it. What’s important, however, is that this trend so far has mainly been catalyzed by the private sector, at least in the U.S. Fundamentally, the dollar is still a physical asset, represented by bills that are as ubiquitous as the water or air.

He wrote in a recent newsletter that the States must move to establish a digital money system, specifically “to gain a [monetary/economic] advantage” and to “capture the imagination of hundreds of millions of people.”

Pompliano isn’t alone in his assertion that the U.S. needs a digital dollar. Congressman Warren Davidson, a U.S. politician who created a lot of buzz in the cryptocurrency community after mentioning the terms “Bitcoin” and “s**tcoin” in a hearing (crazy, I know), recently posted the tweet below.

Davidson’s assertion has been backed up by French Hill and Bill Foster, two Congressmen who recently sent a letter to the Fed’s incumbent Chairman, Jerome Powell, to ask him about the creation of a digital dollar. They wrote the following regarding why such a project is needed:

“We are concerned that the primacy of the U.S. Dollar could be in long-term jeopardy from wide adoption of digital fiat currencies. Internationally, the Bank for International Settlements conducted a study that found that over 40 countries around the world have currently developed or are looking into developing a digital currency.”

Why CBDC?

So, why would a digital dollar be so important? Well, according to Davidson, digital tokens would allow for financial disintermediation, immutability, ledger distribution, among other benefits.

Seeing that there are centralized risks in data privacy and that financial transactions can be high cost (credit card transactions cost 3%, wires cost $20+, etc.), CBDCs could help by reducing friction and by promoting better financial privacy.

Hill and Foster, in their letter, tied the call for a Federal Reserve CBDC back to Libra, which is arguably what caused the latest buzz regarding widely-adopted cryptocurrencies.

They wrote that if Libra or a similar project launches, the U.S. would benefit by preventing the “loss of control of monetary policy, as well as the ability to implement and enforce effective anti-money laundering and counter-terrorism financing (AML/CTF).”

Indeed, these benefits have led Dutch financial institution ING’s chief economist, Mark Cliffe, to say that it will only be two to three years before a G20 central bank begins to roll out a “fully-fledged digital currency.”