Gear Up and Stay Tuned for the USA’s Digital Dollar

The digital dollar will reform the future of money.

The United States of America is progressively working towards creating its own central bank digital currency (CBDC). This digital currency will be called the Digital Dollar. The Federal Reserve also declared that a research paper will be released soon. With the development of the US digital dollar, the country will be joining hands with leading and powerful nations of the world and reform the future of money.

China is one of the prominent nations that is working on developing a digital currency – the digital Yuan. However, the USA's digital dollar will play a crucial role due to the value of the dollar to global trade as well as the entire world economy.

The digital dollar will be issued by the Federal Reserve as it is the country's central bank. Further, it would also remove middlemen, enabling super-fast cheque clearing, zero-fee payments, and other unseen developments.

The digital USD will provide improved access to the banking system, eliminating barriers to adoption and other issues. It can also facilitate distributing government payments efficiently. Moreover, with the growing popularity of stablecoins, a central bank-supported digital currency will be a safer option for everyone as private money will be inefficient to take care of the liabilities.

This US government digital currency can be used across the world for both domestic as well as cross-border transactions. With the increased adoption of smartphones, CBDCs will help people effectively adopt digital modes of payment and turn into a powerful digital economy. This will also ensure that underprivileged people have easy access to banking at a lower cost.

Nonetheless, experts believe that creating a digitized currency can raise privacy issues as a countless number of citizens will be using the digital dollar for financial transactions. If compared with China's digital yuan, the government offers access to transaction data. There are unanswered questions on how the digital dollar will be secured and protected.

Further, the dollar is the world's reserve currency. The US government enjoys a privileged status as a borrower on global markets. At the end of 2020, the US accounted for 60% of the world's foreign exchange reserves. Compared to China, it held only 2.25%.

Experts suggest that one single mistake can harm the reputed status of the US as well as its financial standing. Economies around the globe can be affected as cross-border transactions are majorly conducted in dollars. Any instability can be dangerous.

But if we think carefully, it can be a revolution for people living outside the U.S. to conduct transactions in dollars but can be a negative point for countries trying to manage a national currency.

So if the digital USD replaces the local currency, now in use, it can harm the buying power of people who are completely dependent on it. Further, it can also adversely affect the ability to manage the money supply of the local central bank.

One of the major goals of creating the digital dollar system is keeping up with China as China is already in the trial phase of its digital yuan and the US doesn't want China to win the race of setting the digital transactions standard. The digital dollar will keep up the US's dominant role in international trade and financial transactions as well as maintain Fed's control over the money supply and its role to set monetary policy.

Hence, before rolling out the digital dollar, the Federal reserve needs to create a digital dollar system that will secure the privacy of households' payment transactions and forestall illegal activities as it is very crucial to ensure the integrity of the financial system is protected.

Experts do believe that the era of physical cash and trading is coming to an end with the launch of the digital dollar expected to come in the next 1-2 years.