Wall Street is warming up to the idea that the next big disruptive force on the horizon will be the Federal Reserve digital currencies, even though the Central Bank remains likely to develop its own a few years from developing its own. Led by countries as small as China and as big as the Bahamas, digital money is drawing a greater interest as the future of an increasingly cashless society. A digital dollar would resemble cryptocurrencies such as Bitcoin or Ethereum in some important aspects, but differ in important ways. Instead of a digital asset with wildly fluctuating prices and limited use, the central bank's digital currency would function more like dollars and have widespread acceptance. It would also be fully regulated and under a central authority. Myriad questions remain before an institution as large as the Fed will wade in. But the momentum is building around the world.
A major move to introduce digital currencies could actually disrupt the financial system, said Chetan Ahya, Chief Economist at Morgan Stanley in a report for clients. Efforts to introduce CBDCs are gaining momentum, with as many as 86% of the world's central banks exploring digital currencies. In fact, a 2020 survey by the Bank for International Settlements revealed that almost every digital bank in the world at least did some work on these currencies. Some 60% are working on proof of concept testing, though only 14% have actually completed a pilot program or are currently in development.
Along with the excitement about a possible new horizon on the financial system has come concern over the implementation of the legislation. A central banker, conversely, cites multiple advantages of digital currency. One of the reasons is giving unbanked people access to the financial system. There is also a speed consideration. Transfer payments, such as those which governments provided to people during the Covid 19 crisis, would be made faster and easier if this money could be deposited directly into digital wallets.
New forms of digital money could provide a parallel boost to the vital lifelines that remittances give to the poor and developing economies, said Kristalina Georgieva, managing director at the International Monetary Fund, in recent remarks at a joint meeting with the World Bank. The largest beneficiaries would be the small people who would be left behind by the pandemic: those most at risk from being left behind. Potential losers from the digital currencies include some financial institutions, both in traditional banking and fintech, that could lose deposits due to people putting their money into central bank accounts. There are also privacy concerns and worries over integration.
As the Fed and other central banks work through these logistical issues, Wall Street is growing in anticipation of what the future will hold. The race towards digital money 2.0 is on, said Citigroup in a report. Some have framed it as a digital space race or new Cold War in digital currency. It does n't have to be a digital game- there's a lot of room for the entire zero pie to grow. There, however, has been at least the semblance of a race, and China is perceived as taking the early lead. With the launch of a digital yuan last year, some fear that China's edge could eventually undermine the dollar's status as the world's reserve currency. Though China has said that this is not its aim, a Bank of America report notes that issuing digital dollars would help the U.S. currency remain highly competitive relative to other currencies. CBDCs offer the benefits of improving financial transactions, without the adverse side effects of crypto currencies, wrote Bank of America economist Anna Zhou. Numerous other nations have moved forward on projects, after the Bahamas was first with its Sand Dollar. The Fed is currently working on a joint project with the Massachusetts Institute of Technology to assess the efficacy of a digital dollar, though there is n't a specific timetable on when or when the US central bank will move forward. There are many difficult and complex policy choices to make and design choices that you have to make, said Fed Chairman Jerome Powell in a recent interview on CBS 60 Minutes. We have not made a decision to do this again because of the question, is it going to benefit the people that we serve? And we need to answer this question well. In a paper on the topic, Greg Baer, CEO of the Bank Policy Institute, an industry lobbying group, cautioned about a potential degradation of the traditional banking system. He added that the impact on economic growth could be steady unless the central bank also assumed responsibility for lending or became a regular source of funding for banks. The path ahead is currently uncertain and design choices could drive very different outcomes, wrote Baer. He noted the caution of the European Central Bank and how that contrasts with the more precipitous action by the Fed. 'Cash is going to go the Way of the Dodos '' The ECB is moving ahead with its project on britcoin, though it has said that it will be simply a digital currency conduit for banks which would act as intermediaries for banks.
This 'brick' would be tied to the value of the pound to eliminate holding it as an asset from to earn profit.
There could be a wider investment in the UK tech sector and lower transaction costs for international businesses, said Jeremy Thomson-Cook, chief economist at international business payments specialist Equals Money. I think this legitimizes the belief that cash is going the way of the dodo and that the wider payment landscape will be entirely online within the next decade apart from incidentals or quixotic spending, Thomson-Cook said.