President Joe Biden today issued an executive order that could lead to the creation of a digital currency in the US.
“My administration is paying the utmost attention to research and development of potential design and deployment options for the US CBDC. [Central Bank Digital Currency]“These efforts should include an assessment of the possible benefits and risks for consumers, investors and businesses; financial stability and systemic risk; payment systems; National security; ability to exercise human rights; financial inclusion and equity; and the actions required to launch a US CBDC if it is deemed to be in the national interest.”
Biden’s order stated that the U.S.-issued digital currency could be used to “support efficient and low-cost transactions, especially for cross-border transfers and payments, and to expand access to the financial system with less risk associated with individuals.” sector-driven digital assets” such as bitcoin and other cryptocurrencies. But there are “potential risks and downsides to consider,” and Biden ordered federal agencies to produce a report within six months analyzing the implications. More than 100 countries are already “exploring or testing” CBDCs, according to the White House.
Biden also instructed government agencies to develop a policy for managing already existing cryptocurrencies. “The growth of digital assets creates an opportunity to strengthen American leadership in the global financial system and at the technological frontier, but also has significant implications for consumer protection, financial stability, national security and climate risks,” the White House said. Biden’s order “calls on regulators to provide adequate oversight and protection against any systemic financial risks associated with digital assets.”
Biden’s order noted that “negative impacts on climate and pollution…may result from cryptocurrency mining.” There will be no need to mine a digital currency issued by a central bank.
The price of bitcoin is up 8 percent today, and other cryptocurrencies are up as Biden’s order “took industry support,” writes CNBC. The price of bitcoin has been highly volatile as “the pandemic started at $7,300, peaked at around $68,000, and then fell back to around $39,000,” a Biden administration official told reporters yesterday in a phone call.
Advertising
What is Central Bank Digital Currency?
The Federal Reserve explains that a central bank digital currency is “generally defined as a digital central bank liability that is widely available to the general public.” This is in contrast to the two current types of central bank money in the US: “physical currency issued by the Federal Reserve and digital balances held by commercial banks at the Federal Reserve,” according to the Federal Reserve FAQ.
“While Americans have long held money predominantly in digital form—for example, in bank accounts, in payment apps, or through online transactions—the CBDC will be different from existing digital money available to the general public because the CBDC will be a liability of the Federal Reserve. not a commercial bank,” says the Federal Reserve. Because it will be a Federal Reserve commitment, “CBDC will be the safest digital asset available to the general public with no associated credit or liquidity risk.”
A U.S.-issued digital currency will be in some ways similar to dollar-pegged stablecoins. The main difference is that CBDCs will be issued by the Federal Reserve itself.
The Federal Reserve says it has not yet decided whether to use a digital currency, but notes that a CBDC “could provide households and businesses with a convenient electronic form of central bank money with the security and liquidity that it entails; give entrepreneurs a platform to create new financial products and services, support faster and cheaper payments (including cross-border payments), and increase consumer access to the financial system.”
“The Federal Reserve does not intend to proceed with issuing a CBDC without explicit support from the executive branch and Congress, ideally in the form of a special enabling law,” the Federal Reserve also said.
The US CBDC will not replace cash or fiat money. “The Federal Reserve is committed to ensuring the continued safety and availability of cash and sees CBDC as a vehicle to expand secure payment options, not reduce or replace them,” the Federal Reserve said in a statement.
Senior Biden administration officials told reporters that “the implications of the possible issuance of a digital dollar are significant.” But the officials added that they intend to “maintain the centrality of the dollar in global financial markets and the global economy.”