US not keen to follow in China’s footsteps with its own digital dollar
REGULATORS today understand that they play a significant role in developing and supporting the digital economy in their countries.
One of the critical items on their agenda: digital currency.
China has been toying with the idea of launching its own digital Yuan for a while now — including providing anonymity to those that demand it, much like other cryptocurrency options in the market.
“We know the demand from the general public is to keep anonymity by using paper money and coins … we will give those people who demand it anonymity in their transactions,” People’s Bank of China Head of Digital Currency Research Institute Mu Changchun told media recently.
Interestingly, the US isn’t interested in following in China’s footsteps or racing ahead to launch its own digital dollar first.
Instead, US Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell recently said that they’re not keen on issuing a digital dollar.
“Chair Powell and I have discussed this at length — we both agree that in the near future, in the next five years, we see no need for the US Federal Reserve to issue a digital currency,” said Mnuchin.
The comment came in light of queries raised by lawmakers and industry participants on the back of Facebook experimenting with its global digital currency project.
Dubbed Libra, the social media giant’s digital currency has met with hurdles since its initial announcement — although Mnuchin and Powell both seem to have no issues with its launch — provided it complied with the law.
“I’m fine if Facebook wants to get into digital payments […] and that may be good for their customer base and good for a lot of Americans who don’t have access to banks […] we want to make sure if they do it they’re doing it in a way that is fully compliant with our BSA/AML and that in no way can this be used for terrorist financing,” Mnuchin said.
The decision to steer clear of the digital dollar, for now, is a result of extensive studies conducted by the US Federal Reserve.
“[We have] not identified potential material benefits of [a] general-purpose central bank digital currency (CBDC) to the implementation of monetary policy relative to our existing tools,” Powell said recently.
The need of the hour: A real-time payment and settlement system
Instead of diverting resources to pursuing a digital dollar, Mnuchin and Powell are working on developing an instant, round-the-clock, real-time payment and settlement system that can be launched in 2023 or 2024.
The new interbank 24x7x365 real-time gross settlement (RTGS) service with integrated clearing functionality is a project that has been christened ‘FedNow’.
When available, FedNow will enable financial institutions to deliver faster end-to-end payment services to their customers — making it possible to send and receive payments any time, any day, anywhere, and have full access to funds within seconds.
“Everyone deserves the same ability to make and receive payments immediately and securely, and every bank deserves the same opportunity to offer that service to its community,” said Federal Reserve Board Governor Lael Brainard.
“FedNow will permit banks of every size in every community across the country to provide real-time payments to their customers.”
What the US is doing is similar to projects that other financial hubs in developed markets are pursuing, including in Singapore and Hong Kong.