One of the issues that could have substantial effects on the cryptocurrency world is the introduction of digital currencies by central banks across the world. In the USA this would be the digital dollar. A couple of years ago President Biden instructed federal agencies to get their acts together in terms of how cryptocurrencies should be considered and administered. Included in that set of instructions was the future of US currency and the price of digital assets in the financial world. Now, with the US election campaigns in full swing, Trump and his opposition to a digital dollar have become a significant issue for crypto.
Why Does Trump Hate A Digital Dollar?
Bloomberg wrote recently about Trump’s distain for digital dollars. It turns out that Trump’s dislike of digital dollars has more to do with wanting support from those in the crypto world who would rather not see competition from the federal government in the crypto world. A US digital currency would be easier to track by authorities than crypto is. They would also compete directly with crypto as the most effective way to carry out financial transactions. We have written about how a major stumbling block for international crypto transfers is converting crypto into local currencies. Such would not be the case with a digital dollar.
Emerging Digital Currency Cold War
Over the last years China has emerged as the chief competitor to the US and Europe on the world stage. This competition is financial, political, and military. Trump’s contribution if he regains the Oval Office will be to put high tariffs on all products from China. There are other parts of this such as putting tariffs on goods from all of the world that sound like the Smoot Halley tariffs that ushered in the Great Depression in the 1930s but that is another issue.
As noted in the Bloomberg article, a CBDC (central bank digital currency) cold war could develop in which the US and EU ban these currencies while China and much of the rest of the world uses them. With nations like China half a decade ahead of the USA in developing national digital currencies, this potential split of the world into opposing camps is very real.
Isn’t The Dollar Already Digital?
When you do online banking to transfer money it would seem that you are getting the same type of service envisioned by the creators of Bitcoin. Namely, you are able to use the internet to do financial transactions anywhere in the world. However, the balance that you see on your computer screen on your bank’s website is a liability held by you against the bank. If central bank digital currencies become a real thing then what you will see will be the value of your digital assets.
Benefits of Central Bank Digital Currencies
Those who promote the idea of central bank digital currencies say that this means of moving money around would be more efficient and cheaper for consumers and trading partners. When compared to using today’s cryptocurrencies it would make converting into local currencies much easier. When compared to using cryptocurrencies which have a tendency to be quite volatile, CBDCs would be more like using stablecoins that Bitcoin, Ether, etc.
Law enforcement agencies like the idea of being better able to track both domestic and international payments in order to fight narcotrafficking, terrorism, tax evasion, and fraud. Here is where many in the crypto world see a risk of losing the relative privacy that crypto currency affords its users. Proponents of CBDCs counter by noting that banks are already selling anonymized credit card data from their customers!
CBDCs Need to Be All of None
For the benefits of central bank digital currencies to be experienced by all these need to be instituted across the world. Otherwise we may be seeing a fragmentation of the world economic system. A problem with the USA is that the vast majority of Americans only make transactions within the USA itself, the world’s largest economy. Thus, one will need to convince the US public to accept this and by extension, their representatives and senators not to mention the next US president!
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