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Fed toys with the idea of a digital dollar

  • The US Federal Reserve has  no immediate plans to issue the digital dollar, but the idea is in the air.
  • The officials are worried that the dollar might lose its dominant position.

The US Federal Reserve is actively considering the possibility of issuing digital currency, fearing that their fiat dollar might lose its leading position in the global financial system. This idea was expressed by the President of the Federal Reserve Bank of Dallas Rob Kaplan, CoinDesk reports.

He believes that if a foreign government or company issues digital money that is widely recognized, the dollar may lose its stance as a world’s reserve currency.

“We have not at the Fed decided to pursue or drive to develop a digital currency, but it’s something we’re actively looking at and debating,” he said speaking at a local business event in Austin, Texas.

Earlier this week, the head of the Commodity Futures Trading Commission (CFTC), Christopher Giancarlo also expressed concerns that the dollar might lose its dominant role in the world if countries start issuing digitalized version of their fiat currencies. He suggested that the US should have a digital, blockchain-based dollar.

The Governor of Bank of England Mark Carney also said that a digital currency like Facebook’s Libra could replace the dollar as a global reserve currency.

The emergence of an attractive and viable alternative to the dollar will reduce demand for US government securities, Kaplan added. As a result of this development, interest rates on US government bonds may increase by 100 basis points (1%), consequently, the cost of servicing public debt would soar by $200 billion per year.

Kaplan noted that sanctioned countries are working most actively on the digital alternative to the dollar.

“People around the world are working really hard to try to find alternatives to dollars and dollar infrastructure because the more they’re invested in that, the more susceptible they are to sanctions, tariffs and what’s going on right now,” he said

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