The United States Federal Reserve Bank recently gave the clearest sign yet that it will develop its own digital currency. The announcement pushed the value of the bitcoin beyond the $10,000 mark up from $7,179 in December 2019.
Federal Reserve Bank Chief Jerome Powell told Congress that the Bank’s view on a digital dollar was overdue considering the fact that Facebook’s Libra came as a “wake-up” call and that the US digital currency could come “fairly quickly.”
He added that the issue of digital currencies was becoming “systematically important” even though there are still “many questions that need to be answered around digital currency for the United States.”
The type of cryptocurrency that governments prefer to create is sometimes referred to as central bank-backed digital currency or state-issued digital currencies. In some cases, they are simply known as stablecoins.
These types of cryptocurrencies are designed to minimize the volatility of the price that is often common with other coins that are not pegged on, for example, fiat money or some assets. They can take the form of national currency.
After several years of dilly dallying on the issue of digital currency, congress seemed to be putting pressure on the Federal Bank Chief to move with speed in implementing a central bank backed digital dollar. The move could herald a new chapter in the global economy.
Analysts think that the chairman’s warming up to digital currency was largely a response to China’s Digital Yuan, Facebook’s Libra, and Public Payments Ledger now common in China. He, however, stated that whilst “a ledger where you know everybody’s payments” is widely used in China, he believes that it would not be appealing in the US.
China recently made a surprise policy shift especially when its economic planning agency removed cryptocurrency mining (a process for verifying cryptocurrency and adding them to the blockchain digital ledger for trading) from a list of activities considered illegal in the country. They are perhaps setting stage to lead the world in this emerging technology.
There is, however, uncertainty whether launching a digital dollar would guarantee that the US dollar retains its central role in the US and the world’s financial system.
Powell said that, “having a single government currency at the heart of the financial system is something that has served the US well,” while emphasizing that “preserving the centrality of a central widely accepted currency that is accepted and trusted is an enormously important thing.”
In the United Kingdom, the Bank of England has stated that it wants to create a central bank-issued digital currency but they first want to understand its implications. In Africa, Tunisia and Senegal issued a blockchain-based national currency, the eDinar and eCFA respectively. These digital currencies are being used along with the regular currencies. Plans are under way to expand the eCFA to other West African states.
Although the European Union is reluctant to issue a digital Euro and the US has hitherto been indecisive, paper currency is slowly becoming obsolete. The convenience of digital currencies is such that there is absolutely nothing anyone can do to slow their spread in society.
The attractiveness of digital currencies is not just convenience. They present a strong value proposition to especially emerging economies.
The short history of digital currency in Kenya is perhaps known for its inclusiveness. Access to finance has become more widespread. Few people today visit banks. As a result, many banks branches are closing.
Digital currencies especially in digital mobile lending in its present formats are expensive. Like in any commodity with limited supply their price will plummet if more players join the market. A stable coin will change the dynamics and force banks to move into digital lending for greater inclusivity.
As the old English idiom says, “the proof of the pudding is in the eating.” We can only understand the implication of this emerging currency phenomenon if we tried it. Just as we did with M-Pesa.