Friday, December 8, 2023

America’s Digital Currency Dilemma

On Wednesday, September 20th, The US House of Representatives Financial Services Committee has approved two bills to restrict the issuance of a central bank digital currency (CBDC). One bill would prevent the Federal Reserve from launching CBDC testing programs without congressional approval, while the other would prevent federal banks from using CBDC for some services and products.

The main political opponents of a digital dollar are heavyweights like Robert F. Kennedy Jr. and Florida Gov. Ron DeSantis, who have thrown their hat into the ring to become president a year from now in November.

In July, DeSantis said CBDCs would never be created under his administration, citing concerns that consumers would lose power over their own money.. For his part, Kennedy, a well-known defender of Bitcoin, speaks out against the digital dollar because it will “significantly expand the government’s power to suppress dissent by cutting off access to funds at the touch of a button.”

In May, Cointelegraph reported that its research showed that more than 130 countries were in the phase of exploring a CBDC and only eight had rejected the idea outright. These countries are diverse, from France and Switzerland to Haiti and Bhutan. So you have to ask yourself: Why is a country like the United States so opposed to having its own digital currency?

The idea of ​​a CBDC itself is not all that exhaustive. Essentially, digital dollars would be based on blockchain technology instead of traditional dollars circulating between accounts. This would drastically reduce transfer times, cut commissions and put an end to the “middlemen” slowing things down and taking a cut.

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According to the Federal Deposit Insurance Corporation, there were still 5.9 million unbanked households in the United States in 2021, a huge number no matter how you look at it.

A CBDC would mean that the Federal Reserve would monitor virtually all bank transfers in the country, as there would be no alternative. And having everything under one roof means that an error or glitch would affect everyone, not just one bank.

Perhaps the biggest argument against a CBDC, however, is that for cryptocurrency purists, a central institution overseeing a currency is exactly what cryptocurrencies should avoid. Why make a 180 degree turn now?

Political motivations play an important role in the debate in the USA. In March 2022, President Joseph Biden said his administration would “place the highest priority on research and development efforts on potential design and deployment options for a U.S. CBDC.”

This prompted the Republican Party to speak out against the plan, citing invasion of privacy and claiming it was another form of government control.. DeSantis even made an Orwellian prediction about the possibility that the government would prevent its citizens from purchasing fossil fuels or weapons if such legislation were implemented.

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This is not to say that the United States has not looked heavily into CBDCs.

In 2020, The Federal Reserve launched Project Hamilton to study the feasibility of a CBDC. By 2022, it had developed a system that adopted elements of how Bitcoin worked but moved away from its rigid blockchain backbone. The result was a system capable of processing 1.7 million transactions per second, light years ahead of the Bitcoin blockchain and even faster than Visa, which can process around 65,000 transactions per second.

David Millar, Santander data center coordinator, told Cointelegraph: “The progress they made during Project Hamilton was truly amazing. When we heard about the progress they were making, we were convinced that our entire infrastructure would need to be completely renovated in the next five years.”

However, the project completed its first phase in December 2022 and did not move forward. Once again, dissenting voices in Congress attacked the project, claiming it was done with only science and the public sector in mind and that the average citizen would not benefit from it. Millar added:

“The time and effort invested in Hamilton and the results they achieved; “It’s a tragedy that most of this never sees the light of day.”

The issue of privacy is one of the main enemies of the digital dollar. The critics’ main argument is that if there is to be a digital dollar, it should be effectively what the cash dollar is now, with its benefits of anonymity combined with the power and speed of a cryptocurrency. Proponents of the digital dollar claim that it already exists, but is not yet called that. Credit card money is digital in every way, and do any of us send cash to Amazon to pay?

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The world is moving toward a cashless society, and the United States is no exception. In 2022, only 18% of all payments in the United States were made in cash, down from 31% in 2016.

The United States is also a land of strange contradictions. Although it is making advances in many areas, such as technology, its banking system remains anchored in the traditional, with check payments still the norm. Dissuading an entire nation from doing so is a difficult task.

So what does the future hold for a potential US CBDC? Well, very little. “Project Hamilton” has been completed with no sign of a second phase and, according to Darrell Duffie, a finance professor at Stanford Business School, while work continues on it, it is progressing at a snail’s pace and “no one is moving forward openly.” “.

It appears that for the foreseeable future, this will be a part of cryptocurrency that the United States will not pioneer.

Nation World News Desk
Nation World News Desk
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