Now or never, America needs to prepare for digital currency

Welcome to the world of central bank digital currencies, also known as CBDCs, where big countries like China and small countries like the Bahamas are trying to differentiate themselves. It’s a world where 86% of the world’s central banks are trying to create digital currencies. Almost 60% of them are working on the concept and 14% have implemented a pilot program.

Related: Will CBDCs Impact the Crypto Space in 2020 and What’s Next in 2021? Experts answer

CBDC: Global Perspective

CBDCs are digital versions of national currencies that can be exchanged around the world. Unlike national currencies, you can keep a digital currency on your smartphone to buy whatever you want.

Five countries have introduced their digital currencies. The Atlantic Council estimates that around 81 countries (which contribute 90% of global GDP) have already started research into digital currencies. And that is just the beginning.

Related: CBDC Promised Land: While some governments stall, others move on

According to a survey by the Bank for International Settlements (BIS) published in January, there will be an explosion in digital currencies in the next few years. According to the BIS, countries making up one fifth of the world’s population will soon adopt a digital currency.

China is currently at the top of the league. You have made over $ 5 billion worth of transactions with CBDC, the digital yuan. Some fear that this will give China an edge over the US dollar’s position.

Related: How the Yuan Digital Stablecoin affects cryptocurrencies in China: Experts are reacting

But how can you use CBDC? Well there are several options. You can buy necessities like groceries and medical supplies. However, it is best if the digital currency is not used to buy alcohol or cigarettes. Cryptocurrencies can also be useful during a pandemic. It can provide quick government aid through digital wallets. It can also help the government avoid negligence.

Is America Ready To Enter The CBDC World?

The US Federal Reserve remains skeptical about the effectiveness of central bank digital currencies. You are still many years away from developing your own digital currency. Meanwhile, according to a report by Bank of America, digital currencies will cause the US dollar to “remain very competitive … against other currencies.”

The US House of Representatives Financial Services Committee held a hearing on the benefits and limitations of central bank digital currencies. Many in attendance, including Julia Coronado of MacroPolicy Perspectives, expressed the view that the US needs to be more serious and take a leadership role in the CBDC.

China has led the race and other countries are making steady progress as well. If the US maintains its relaxed attitude towards the digital currency, it will lose the ability to decide on the future of the digital currency.

Possible reasons for America’s pleasant attitude towards cryptocurrency

One possible reason the U.S. hasn’t taken proactive steps regarding cryptocurrencies is that the U.S. dollar still has the upper hand. What the US doesn’t understand, however, is that CBDCs can remove the US dollar from the US zero Position as global reserve currency in the future.

A digital currency would remove barriers for countries to conduct direct financial transactions with one another. You will no longer be dependent on the US dollar. One reason the US dollar dominates the world is because it is a reserve currency. People use it for convenience. But with the advent of cryptocurrencies, these people can do deals directly between trading pairs.

Related: China’s CBDC is about domestic dominance, not beating the dollar

The US dollar is an integral part of US foreign policy. The federal government can exclude sanctioned countries from the dollar-based system.

Now it all depends on the United States. If the country does not implement its own CBDC, it may not receive a lot of information about future cross-border transactions. If other countries were to use digital currencies for transactions, they would not have to use the Global Consortium’s Interbank Financial Telecommunication network, which the US can oversee.

What can america do?

The digital currency has one disadvantage, which is the lack of privacy. Many Americans may not like the ease with which the government can monitor digital currency transactions. The US government can play an important role in allaying these concerns. It is possible to develop a digital currency that does not invade privacy. According to Co-Founder of the Digital Dollar Project, Chris Giancarlo:

“If this is to be the technology of the future, we want to make sure the United States has democratic values ​​to work with.”

Final notes

A close examination of the current scenario suggests that the digital currency will stay here. Digital currencies can help central banks coordinate directly with people. This is extremely useful in times of crisis.

The widespread use of digital currencies could lower the operating costs of the global financial industry. It could become the most convenient way to conduct financial transactions and move us towards a cashless society.

Will it eliminate cash altogether? Well, it’s too early to make any predictions as cash is still the most private form of currency. Central banks do not recommend abolishing cash altogether.

Will it replace Bitcoin (BTC) or other cryptocurrencies? The fundamental difference between CBDC and cryptocurrency is that the first is government digital currency and the second is government digital currency. Currently, CBDC is less likely to replace cryptocurrencies that are suitable for private transactions (although it is unregulated and vulnerable to hackers).

Then comes the next big question: What about America’s place in the CBDC world? Simple answer. If the US is still not ready for a digital currency, it will remain on the sidelines. It will lose the ability to create a digital currency that is democratic and highly privacy focused. Michael Sung from the Fudan Fanhai Fintech Research Center in Shanghai: “You will experience a massive transformation of the international currency system.”

If this is true and the digital currency becomes widespread, the value of the US dollar as a global currency will decline. If America acts wisely and develops digital currencies, it could bring about 14 million unbanked American adults into the financial system.