How digital currencies work – Marketplace
The Federal Reserve on Thursday dropped an announcement by President Jay Powell for a central bank digital currency – a digital dollar – for the United States
The Fed is thinking about it and will continue to think about it, he said, and this summer it will release a paper on the benefits and risks of doing so.
A central bank digital currency would be a lot like Bitcoin, minus the chaos and volatility.
“It would be issued and backed by the US Federal Reserve,” said Jim Angel, who teaches at McDonough School of Business in Georgetown.
Bitcoin’s value changes every second. A central bank digital dollar would always be… just a dollar.
“Imagine smart money,” Angel said. “Imagine programmable money. Imagine money that you could send to your nephew, but he could only spend it on textbooks in college. Imagine being able to keep track of what the charity did with the money you gave. “
About 80% of central banks around the world are exploring a central bank digital currency, according to a report by Bison Trails. A fundamental question: what exactly would they do with it?
“Will they allow speculation or investment in the asset, or will they just limit it to just payments and payments?” asked Paul Grewal, the legal director of Coinbase, which operates a cryptocurrency exchange platform.
Grewal said the other big question was how anonymous should this thing be?
David Treat, senior managing director of Accenture, said he takes paper money as a comparison. “If I’m at the convenience store and slip a $ 10 invoice to the store owner, I’m not sharing any identity information as part of this transaction.”
A digital dollar could be just as anonymous, but with legal exceptions. “With triggers that suddenly, identity information could be flagged,” Treat said.
Different countries will offer different rules and levels of privacy. China is one of the first to develop this type of digital currency, said Georgetown’s Jim Angel.
“This will give the Chinese government an unprecedented vision of what its people are spending money on and give the Chinese government the ability to shut down people’s wallets,” he said.
In contrast, Angel said, Europe is in the process of developing a version with some privacy controls. If the United States wants the dollar to continue to be the world’s most useful currency, Angel said, it will have to catch up.