The United States has taken a decisive step towards issuing its own central bank digital currency, with the Federal Reserve announcing that it will release a research paper later this year that explores the move further.
The timing of this announcement matters in two ways – first, it comes at a time when the cryptocurrency market suffered its worst crash in over 12 months, with major cryptocurrencies slipping over 25% in 24 hours, which signals the end of a bull run that has propelled Bitcoin and Ethereum to record highs.
Second, this move by the US central bank comes in the wake of China’s accession to several countries that ended the central bank digital currency space (CBDC), raising concerns that it could undermine the US dollar’s position as the world’s reserve currency.
What did the US Fed say?
Although the US Fed has not made specific currency plans, Fed Chairman Jerome Powell outlined advances in payments technology and said the central bank has “carefully monitored and adapted” these. Technological innovations.
“The efficient functioning of our economy requires that people have confidence not only in the dollar, but also in the payment networks, banks and other payment service providers that keep money flowing on a daily basis,” said Powell. in a video message accompanying the announcement on Thursday.
“Our goal is to ensure a safe and efficient payment system that offers broad benefits to American households and businesses while fostering innovation,” he said.
How does the Fed propose to operationalize the plan?
The US Federal Reserve will soon release a paper that will focus on the benefits and risks of a CBDC, soliciting public comment on whether it should go ahead with the plan and flagging the risks, etc. . Powell said in the video that this “represents the start of a thoughtful and deliberative process” when it comes to thinking about a CBDC.
“We at the Federal Reserve are committed to hearing a wide range of voices on this important issue. Before making a decision on whether and how to move forward with the US CBDC taking into account the wider risks and opportunities it might offer, ”he said. He also said the CBDC should be designed for general public use and should be a compliment, not a replacement for cash.
How do other jurisdictions review cryptocurrencies and digital currencies?
Last week, China banned financial institutions and payment companies from providing services related to cryptocurrency transactions. This means that banks and online payment channels should not offer customers any services that involve cryptocurrency, such as registration, trading, clearing, and settlement.
China also issued such a ban in 2017, but compared to the previous ban, the new rules have expanded the scope of the banned services and assume that “virtual currencies are not backed by any real value.” The announcement of a crackdown by the Chinese authorities led the major cryptocurrencies to see their prices drop by as much as 40% over a 24-hour period.
What about India?
In India, the government has launched the Cryptocurrency and Official Digital Currency Regulation Bill, 2021, which will ban all private cryptocurrencies and establish the regulatory framework for the launch of an ‘official digital currency. “.
It was due to be presented in Parliament’s budget session earlier this year, but has been delayed as the government continues discussions with stakeholders.