Why America is considering a digital dollar. What form will it take?

Before his order results in a virtual greenback, there will be several major implications — and risks — to consider first.

Here are some major questions:

What form will the digital dollar take? ,

It will still be a dollar issued by the US Federal Reserve central bank, like all US bills and coins in use now, but in a digital form that is accessible to all, not just financial institutions.

Unlike money deposited in a bank account or spent through apps like Venmo and Apple Pay, it will be registered in accounts with the Federal Reserve, not banks.

Meanwhile, the digital dollar will have the same value as its paper counterpart, a departure from the cryptocurrency that currently has a highly volatile valuation.

Key questions remain unanswered, such as whether a digital dollar will be based on blockchain technology such as bitcoin or if it will be linked to a payment card of some sort.

Biden is asking agencies, including the Treasury Department, to investigate a variety of issues on the subject.

If the government decides to move forward, it could take “several years” before we can use the digital dollar – for example the authorities will have to figure out which technology to use, said digital currency expert Darrell of Stanford University. Duffy said. California.

Why Launch Digital Dollar? ,

This will reduce or eliminate transaction fees as exchanges will no longer go through banks, bank cards or apps that charge commission on every payment.

Supporters say it would help people without bank accounts, about five percent of households in the United States, and could make it easier for the government to pay benefits.

There are risks such as system failure or cyberattacks, and there are also questions about privacy, as the government can theoretically have access to all transactions.

The banking system could also be undermined as banks currently use customer deposits to lend to others, and they may have less money at their disposal with digital dollars.

– How will global finance be affected? ,

International transfers, which are often slow and expensive, can be made much easier.

An operation that currently takes two days to validate can be done in an hour, said Mark Chandler, a forex expert at broker Bannockburn.

For Chandler, the geopolitical role of the US dollar will not be disturbed by the introduction of a digital version.

A digital dollar would represent “a natural evolution rather than a revolution”, he said, recalling that more than $6.5 trillion is exchanged in electronic form every day in the foreign exchange market.

Even if China does launch the digital yuan on a large scale, as is being discussed, he said he does not think China’s role in the world economy changes because “there will always be trust, transparency, There will be questions of depth.”

For Stanford’s Duffy, however, if the United States wants to continue to benefit from the dollar’s position as the dominant currency in central bank reserves and international payments, it is essential that governments tread carefully.

“The United States needs to ensure that they remain in a leading position in international forums that discuss standards for creating cross-border payments standards for digital currencies,” he said.

– Can the United States catch up? ,

Other countries are already working on digital versions of their currencies, from the eurozone to India, said Jameel Shaikh, founder of CBDC think tank, but “there is no evidence that there is any significant or significant change since the first time on the market.” material gains.”

Conversely, failure due to unintended consequences, underutilization or other issues could undermine trust in the issuing institution, he said.

“The extreme dominance of the dollar gives the US the luxury of learning from other countries,” said Cornell University professor Ishwar Prasad.

– Will the crypto world be turned upside down? ,

If designed properly, the digital dollar could be much better than a cryptocurrency for home use, Duffy said.

As for international transfers, however, he said he “skeptical that the Fed or the ECB, the big central banks like China or Japan, will give accounts at central banks to people around the world.”

If the United States did so, he said, it could ruin the monetary systems of smaller countries whose people may prefer to use digital dollars instead of local currency.

This story has been published without modification in text from a wire agency feed. Only the title has been changed.