President Joe Biden ordered the Treasury Department to consider creating a government-regulated digital dollar.
AUSTIN, Texas — If the U.S. moved forward with creating its own digital dollar, banks, as we know them, could be a thing of the past.
Last Wednesday, President Joe Biden ordered the Treasury Department to consider creating a government-regulated digital dollar.
"It would be probably as simple as opening up an app, and you can have some banking services, including loans," said Peter Rodriguez, dean at Rice University's School of Business.
Rodriguez said digital currency likely wouldn't replace the physical dollar, but it would cut out the middle man, banks.
"If there's another way that we can buy and sell stuff without putting our money in the bank, where are the banks going to get the money to lend?" asked University of Houston finance professor Craig Pirrong. "So that's one of the concerns that the fed has expressed."
Experts say if the U.S. moved forward with creating a digital dollar, today's banks would be a thing of the past.
Plus, some cryptocurrencies wouldn't be worth much while competing against the stability of U.S. digital money.
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Both educators said Bitcoin and the digital dollar are similar but different in many ways. Perhaps one of the biggest differences is Bitcoin is unregulated and U.S. digital money would be regulated.
"But the difference with Bitcoin, Bitcoin comes in a limited, capped quantity. The government could create as much as it wants," said Pirrong.
Bitcoin's value changes often, but a digital dollar could be tied to the actual U.S. dollar, making its value more stable.
Rodriguez said if some standard cryptocurrency had to compete with the U.S. digital money, some wouldn't last very long.
"It's possible that as a result of this order, you could see certain cryptocurrencies no longer be viable," said Rodriguez. "Everyone will move to hold the most stable, the most viable one in the long run, and that means they could lose on some of these investments."
This process is still in the early stages. For the next few months, federal agencies will be looking at the risk and benefits of cryptocurrency.
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FAQs
Critics claim the digital dollar, or any form of digital currency, would have major privacy and security concerns and could give the government unprecedented access to Americans' financial data. Digital currencies may also be more susceptible to cyberattacks or hacking than traditional payment methods.
Will the US launch a digital dollar? ›
A CBDC is a digital currency that is issued by a government and is normally a tokenized form of the country's fiat currency. “The Federal Reserve (Fed) continues to pilot CBDCs but has not committed to a CBDC and will not issue one without executive branch and Congressional support,” analysts led by Alkesh Shah wrote.
How will digital currency affect banks? ›
Concerns have been expressed that the introduction of a CBDC could result in a sizeable outflow of bank deposits into CBDC holdings. If so, such a bank disintermediation—a con- traction in bank balance sheets—could result in an associated reduction in the availability of bank credit.
What are the risks of the digital dollar? ›
While a CBDC does not offer any unique benefit to the American people, it does pose serious risks to financial privacy, freedom, markets, and cybersecurity. A CBDC is a digital national currency that is a liability of the central bank.
Are banks going cashless? ›
More than half of all bank branches no longer handle cash. Seven out of ten consumers say they can manage without cash, while half of all merchants expect to stop accepting cash by 2025 (Arvidsson, Hedman, and Segendorf 2018).
Will digital currency replace cash? ›
Will a U.S. CBDC replace cash or paper currency? The Federal Reserve is committed to ensuring the continued safety and availability of cash and is considering a CBDC as a means to expand safe payment options, not to reduce or replace them.
Will cash be phased out? ›
From paper to polymer banknotes
While the future demand for cash is uncertain, it is unlikely that cash will die out any time soon.
Does China use digital currency? ›
In 2019, China began piloting its central bank digital currency, known as the e-CNY. After a slow start, uptake has accelerated rapidly, with 26 cities serving as test beds and 5.6 million merchants registered to use the currency nationwide as of last year. Its implementation has gone into overdrive in 2023.
What countries are dumping the dollar in 2024? ›
With further expansion in 2024 imminent, 16 new countries are expected to drop the US Dollar in 2024 and join BRICS. BRICS inducted five new countries in January 2024 including Saudi Arabia, the United Arab Emirates, Egypt, Iran, and Ethiopia.
What banks are switching to digital currency? ›
The pilot will test how banks using digital dollar tokens in a common database can speed up payments. Participating banks include BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank and Wells Fargo.
“… CBDC design features necessary to achieve cash-like functionality come with serious tradeoffs that could negatively impact credit unions and pose broader financial stability risks,” Thaler added.
How far away is digital currency? ›
However, many would agree that digital currencies are the future of money—and most people will be using them within the next decade or so.
Why will cash never go away? ›
With so much business still conducted in cash, don't expect it to disappear any time soon. Besides, some customers cannot pay with anything but cash, since they are unbanked or under-banked.
What is the dark side of CBDC? ›
“CBDCs are a nightmare for civil liberties. They put governments at the center of every transaction, giving governments visibility into financial transactions and the ability to revoke money.
Why are people worried about digital currency? ›
In theory, a digital currency could be programmed to lose value — a form of negative interest — to get people to spend it quickly. Those concerns have penetrated the public's thinking deeply enough to surface in the Republican presidential campaign.
Will digital payment replace cash in the US? ›
Luckily, it's unlikely that we will completely do away with cash — at least not any time soon. This means more time for small businesses to get comfortable before they take the mandatory leap into digital payments. 71% of consumers intend to continue using cashless payments in the future.
Should we get rid of cash? ›
For instance, using cash instead of credit or debit cards may help keep some people from overspending, because you can see how little is left in your wallet after every purchase. In short, getting rid of cash would impose hardships on society's most vulnerable people and could jeopardize our privacy.
How to protect yourself from the digital dollar? ›
Use strong passwords, keep your antivirus software up-to-date, and avoid clicking on suspicious links or downloading unknown software. Also, protect yourself by using two-factor authentication when you login to data-sensitive sites. CBDC is a digital currency, so you'll need to make sure your digital assets are secure.
Will paper money go away? ›
As people move toward more electronic or digital forms of payment, it might seem like paper money is on its way toward obsolescence. But experts say that cash will always be around.
