President Joe Biden today issued an executive order that could lead to the US creating a digital currency.
“My administration places the highest urgency on research and development efforts in the potential design and implementation options of a CBDC in the United States [Central Bank Digital Currency],” the executive order said. “These efforts should include assessments of potential benefits and risks to consumers, investors and businesses; financial stability and systemic risk; payment systems; national security; the ability to exercise human rights; financial inclusion and equity; and the actions necessary to launch a CBDC in the United States if it is deemed in the national interest.”
According to Biden’s order, a US-issued digital currency could be used to “support efficient and low-cost transactions, especially for cross-border transfers and payments, and to promote better access to the financial system, with fewer risks.” of private sector-managed digital assets,” such as bitcoin and other cryptocurrencies. But there are “potential risks and drawbacks to consider,” and Biden ordered federal agencies to prepare a report analyzing the implications within six months. More than 100 countries are already “exploring or testing” CBDCs, the White House said.
Biden also ordered government agencies to develop policies for managing cryptocurrencies that already exist. “The proliferation of digital assets creates an opportunity to strengthen U.S. leadership in the global financial system and at the technological frontier, but also has substantial implications for consumer protection, financial stability, national security and climate risk,” the White House said. Biden’s order “encourages regulators to ensure adequate oversight and protection against any systemic financial risks posed by digital assets.”
Biden’s order noted that “negative climate impacts and environmental pollution… may result from some cryptocurrency mining.” There would be no need to mine with a digital currency issued by a central bank.
Bitcoin’s price was up 8 percent today and other cryptocurrencies rose as Biden’s order “appeared to be taking a supportive stance toward the industry,” CNBC wrote. Bitcoin’s price has been highly volatile as it “started the pandemic at $7,300, peaked at about $68,000 before falling back to about $39,000,” an official with the Biden administration noted in a conversation with reporters yesterday.
What is a central bank digital currency?
The Federal Reserve explains that a central bank digital currency “is generally defined as a central bank digital liability that is generally available to the general public.” That’s in contrast to the two current types of central bank money in the US: “physical currencies issued by the Federal Reserve and digital assets held by commercial banks with the Federal Reserve,” according to a Federal Reserve FAQ.
While Americans have long held mostly money in digital form, for example in bank accounts, payment apps or through online transactions, a CBDC would differ from existing digital money available to the general public because a CBDC would be a liability of the Federal Reserve. , not from a commercial bank,” says the Federal Reserve. Because it would be an obligation of the Federal Reserve, “a CBDC would be the most secure digital asset available to the general public, with no associated credit or liquidity risk.”
A US-issued digital currency would be similar in some ways to stablecoins pegged to the value of the dollar. The big difference is that CBDCs would be issued by the Federal Reserve itself.
The Federal Reserve says it has not yet decided whether it will pursue a digital currency, but notes that a CBDC “could provide households and businesses with a convenient, electronic form of central bank money, with the security and liquidity that it would bring.” provide a platform for entrepreneurs to create new financial products and services; support faster and cheaper payments (including cross-border payments); and expand consumers’ access to the financial system.”
“The Federal Reserve does not intend to proceed with the issuance of a CBDC without clear support from the executive branch and Congress, ideally in the form of a specific enabling bill,” the Federal Reserve also says.
A US CBDC would not replace cash or paper money. “The Federal Reserve is committed to ensuring the continued security and availability of cash and is considering a CBDC as a means of expanding secure payment options, not reducing or replacing them,” the Federal Reserve said.
Senior officials in the Biden administration told reporters that “the implications of potentially spending a digital dollar are profound.” But those officials added that they intend to “maintain the dollar’s central place in global financial markets and in the global economy.”
