Analysts of the Federal Reserve System warn that the development of CBDCs and stablecoins in other countries may weaken the role of the U.S. dollar in the global economy. Issuing its own CBDC is the only way to make a difference.
Jean Flemming and Ruth Judson, Members of the Board of Governors of the Federal Reserve System, prepared an analytical report, which examines the role of CBDCs in the system of international payments and the potential impact of the active introduction of stablecoins and digital currencies of central banks of other countries on the global role of the U.S. dollar.
The Fed analysts warn that the processes taking place in this area may significantly limit the use of the dollar as a medium of exchange. However, current trends don’t threaten the role of the U.S. currency as a store of value.
To address this issue, the Fed representatives suggest the development of the digital dollar project and the issuance of CBDCs in the United States. This will enable the U.S. to compete with other countries in the sphere of state digital assets. Analysts note that more than 90% of central banks are studying CBDCs, but the specific countries with which it’s supposed to compete aren’t named. They’re probably referring primarily to China, whose digital yuan (e-CNY) project reached a transaction volume of 1.8 trillion yuan (~$249.33 billion) by the end of June 2023.
The Fed analysts’ main concern is the potential weakening of the U.S. dollar’s role as a means of cross-border payments if the local CBDC isn’t issued or issued with technical flaws. In the paper, the authors provide their own thoughts on design and policy options for the use of the digital dollar. They also note that the issuance of CBDCs won’t have a direct impact on the market of the U.S. Treasury bonds and other debt obligations, as well as on the stability of the state economy and political system.
It should be noted that the discussion around CBDCs in the U.S. is gaining momentum. Yesterday, it became known that a group of Republicans proposed a bill to Congress that would prohibit the Fed from issuing the digital dollar. Active rhetoric against CBDCs in the election campaign is also used by Donald Trump, who relies on the opinion of ordinary U.S. citizens, 84% of whom don’t support its introduction.
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