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Creation of the U.S. digital dollar


With the pandemic-induced panic, the global economy has been severely impacted and is in a difficult spot to recover as people are forced home causing businesses to be on the verge of collapse. The latter resulted in a massive equities sell-off, particularly in the United States with both the S&P500 and Dow Jones Industrial Average (DJI) dropping by over 35% from peak to trough.

Monetary Policy

This has caused central banks to step up in unprecedented manners, especially the American Federal Reserve. The central bank has pledged to rescue the economy no matter the cost with unlimited asset purchases, in other words: infinite quantitative easing.

Digital U.S. Dollar

A new stimulus package offer was made by the House Democrats concerning a digital U.S. dollar issued by the Federal Reserve. Interestingly, this was announced by Chairwoman Maxine Waters who had opposed Facebook’s project Libra as soon as it was announced.

The idea of a central-bank issued digital currency (CBDC) is not new and has been a prominent subject of discussion amongst central bankers from around the globe for some time now. The interesting part of the U.S. Dollar proposition is the inclusion of high level details.

The latter was defined as “a balance expressed as a dollar value consisting of digital ledger entries that are recorded as liabilities in the accounts of any Federal Reserve Bank or … an electronic unit of value, redeemable by an eligible financial institution (as determined by the Board of Governors of the Federal Reserve System)”. Additionally, users will be able to hold this in digital wallets similar to other cryptocurrencies.

Effect on traditional cryptocurrencies

While this is simply a more efficient form of fiat money and an evolution from paper cash, it certainly will help raise awareness for traditional cryptocurrencies. If the bill is passed, citizens will be forced to learn how to operate a wallet and their familiarity with it will help lower the barrier of entry for digital assets. Though there is no direct correlation to cryptocurrencies, it certainly raises awareness which may be enough to increase demand, especially in times like these.

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