The crypto revolution is pushing the U.S. government to consider its own digital currency. The U.S. Federal Reserve released a study open for public comment for 120 days analyzing whether the U.S. should have its own digital money. More than 84 countries are either exploring or in advanced stages of deploying national digital currencies, including China, Australia, Mexico, the U.S., the U.K., and many others.
Despite the ups and downs of the crypto market and its risks, digital values, cryptocurrencies, stable coins, and NFTs are here to stay. Companies like Tesla, Google, and Paypal are now operating with crypto, to mention just some of a long list. However, studies show that most users don’t fully understand what digital values are and how they work despite increased popularity.
The U.S. proposal is to create a Central Bank Digital Currency (CBDC). A digital currency is any currency that only exists in a digital electronic form. For example, while U.S. dollars exist both as a physical currency that people can hold in their hands and as an electronic currency that can show up in their account balance, digital currency never takes a physical form. CBDCs have lots of pros and some cons, which are being debated.
The Pros And Cons Of National Digital Money
The U.S. digital currency would be issued, regulated and overseen by the U.S. Federal Reserve. This means that the value of the U.S. dollar would support the digital currency. Like stable coins, CBCDs are not intended to be volatile, jumping up or down with market movements. Most cryptocurrencies are not accepted as payment everywhere, so users have to exchange them before using them. But because national banks regulate CBCDs, they are considered legal tender, which means that anyone in the U.S. would have to accept them.
One of the top digital currency benefits is that they are accessible 24 hours a day, seven days a week. Regular bank transactions can take hours and even days, but digital currency transactions, deposits, withdrawals and transfers are instant. Transaction fees for digital currencies are either free or very low, even when moving funds across the world. Digital currencies are also more inclusive. Downloading a digital wallet is much easier than opening a bank account. E-wallets are usually free and have no maintenance fees. Digital currency would also improve the management of bulk transactions, tax refunds, and many other government fund programs.
The way digital currencies work seems to exceed the traditional systems, so what’s the hold-up? Why haven’t they been embraced yet? Cryptocurrencies’ popularity is leading to the massive creation of new crypto coins, wallets and financial services organizations. This abundance is challenging to keep up with. Cryptocurrencies also operate using computer power that processes the blockchain. The amount of energy required is significant, expensive and can have an environmental impact. Maintaining the value of a stable digital coin is also complex. Digital currencies are also vulnerable to cyber-attacks and scams. And the most significant roadblock in this digital crypto revolution is the old system. Hundreds of thousands of workers, and thousands of banks and financial institutions, still work in the non-digital economy.
Source: U.S. Federal Reserve