Lawmakers are pushing the Federal Reserve to move swiftly toward issuing a digital dollar, to combat steps from China and others they say could one day threaten the US status as the global reserve currency.
The bipartisan group of lawmakers, including Representatives Maxine Waters and French Hill, has sought for the US to counter global competitors launching digital versions of their currencies. The House Financial Services Committee, which both serve on, might vote on related legislation as soon as next month.
Waters has framed competition over new forms of central-bank money as “a new digital assets space race.” The Biden administration and the Fed don’t share a sense of urgency. Unlike private cryptocurrencies such as bitcoin, a Fed-issued central bank digital currency would be backed by the US central bank, just like the Fed backs physical currency.
Fed Chairman Jerome Powell has indicated the central bank isn’t in a rush, as it confronts inflation and a slowing economy. Powell has said it is more important to get the digital dollar right than to be first to market, in part because of the dollar’s critical global role. He has also said the Fed won’t issue a digital dollar without support from elected officials.
The White House has largely remained neutral on a digital dollar, with President Biden ordering a study to determine its implications for issues such as economic growth and stability. Waters, who chairs the financial services panel, has drafted legislation that would require the Fed to study a digital dollar, building on the central bank’s existing work on the issue, and creating a process for the US to potentially issue one in the future.
The idea faces stiff resistance. The banking industry generally says the costs of a central bank digital currency outweigh any benefits and that it would directly compete with private bank deposits, making loans more expensive.
For about a century the dollar has reigned supreme as the world’s most important currency, priced for its ubiquitous acceptance in almost any transaction from a cup of coffee at the neighbourhood diner to a sale of bonds in Hong Kong and elsewhere abroad. There is now a serious debate about whether that status could be threatened by the march of technology and if, in response, the dollar needs to go digital.
A digital dollar could provide a new option to the way consumers pay for products and services. In addition to using a credit or debit card — or Venmo or Apple Pay — individuals would have a digital version of cash on their phones that could be used anywhere, likely through existing financial firms. That could lead to faster, cheaper and safer payments and make paper currency obsolete.