Image courtesy americanbanker
Necessity is the mother of invention and so a lot of Central banks are left scurrying, trying find a way to digitize their currencies, borne more out of fear on being overtaken by the Chinese dragon.
In an unusual virtual congressional hearing in the United States, lawmakers are still deliberating ways to ensure that the stimulus packages reach the recipients intended. There are numerous citizens who were deprived of the first paycheck as the banking system made them run pillar to post to get what belongs to them. Reasons mentioned are frauds, documentation, eligibility IRS etc. What has slowed the same is the difference in speed of announcement by the Fed and the speed of execution by the subsidiary banks to disburse the amounts. Tongue in cheek it was easy to get a mortgage pre 2008 than the stimulus check in 2020.
As a way to sidestep this, lawmakers are looking at digital dollars or simply called as Fedaccounts which are dollar accounts maintained by the US Fed for the recipient sidestepping commercial banks. These accounts will hold digital dollars akin to the greenback but making it a direct account held with the Fed rather JP Morganchase.
The Fed can top up these accounts without having to enlist the services of intermediaries making the transfer faster and cheaper devoid of agent charges. What's holding this up principally is the upheaval that it may create in terms of deposits for commercial banks and their future ability to lend at lower rates. An opposition thrown by the banks include 'it is difficult for the US to achieve its goals in sanctions and terrorist financing enforcement' .
To counter this, one of senators argued that China has already stolen a march over the US in terms of CBDC's thereby threatening US dollar hegemony. A case in point being countries under OBOR or belt and road initiative will be mandated to pay in digital Yuans (Chinese CBDC) thereby cutting inter bank transfers. The leverage Chinese hold over these countries would force these countries to trade in digital Yuans upending the supremacy of the dollar. Unlike the Chinese CBDC , the US lawmakers want the digital dollars to be open and less surveilled keeping in mind the democratic traditions of the US.
What makes this ludicrous is that the Fed chairman thinking that the current payment system in the US is very efficient and cheaper compared to proposed CBDC's under consideration. Few of the deliberations inside the Fed include will these Fedaccounts accrue interests ? how will they impact future monetary and fiscal policies? which are credible.
Clearly the CBDC pot is churning in the US but the outcome maybe NO BUTTER for some more time.
