Market Overview

The U.S. Federal Reserve (Fed) has jumped into the digital currencies race to create its own CBDC (Central Bank Digital Currency). “We have an obligation to be on the cutting edge of understanding the technological challenges, as well as the potential costs and benefits, of issuing a [central bank digital currency]," Fed Chair Jerome Powell said.

However, Mr. Powell said that there is no need to rush with the launch of a new currency: “we’re the world’s principal reserve currency, we don't need to rush this project, and we don't need to be first to market." 

So, a future Fedcoin may be seen to be a concept of a new digital currency under full control by the Fed. Some central banks have already claimed they would launch CDBC. For the moment, research and experiments with the CDBC are underway in China, Europe, the United Kingdom, Sweden, Australia, Japan and some others. However, the Bahamas is the only country that launched the Digital Sand Dollar as a first operational CDBC so far.

The CBDS is another kind of money that could be conditionally called “digital cash”. So, the Digital Dollar may become a third form of money along with wire money in bank accounts and cash. These types of money are not paper currency that can actually be put inside pockets, neither can they be  transferred to your standard bank account. Instead such digital money is stored in a “personal digital wallet” that is kept on smartphones or other personal gadget in a form of unique digital codes. The digital money transfer could be accomplished directly from “wallet-to-wallet” without any wire transfer by the bank. Such digital transfers may be confirmed by exchanging digital codes even without an Internet access. 

A CDBC is also not a privately-issued digital currency with decentralised currency issuing and circulating like Bitcoin. Fedcoin would be issued solely by the Fed as other U.S. Dollars. So, there is no danger of creating a parallel monetary system, hidden criminal transactions, huge exchange volatility – everything that scares central bankers in privately-issued digital currencies. 

The Digital Dollar, as an alternative, could be in demand not only by those who have no access to the banking services, but it may also take attention away from other cryptos, and would probably preserve attractiveness of the Greenback as other central bank would launch their CBDC’s.

However, the value of the Fedcoin could possibly be far greater than other CDBCs since the U.S. Dollar has global domination as a primary reserve currency. The intention of the Fed to create the Fedcoin has seen to spark fear with international payment systems like VISA and MasterCard. Fedcoin could be used without their involvement and that would probably  harm their business, lower their commissions and payments for transactions. Banks could also lose some of their transaction business. On the other hand, the crypto-industry itself is seen to be waiting for the Fedcoin to become a new currency, as it may replace Bitcoin in legal payment transactions. 

Consequently, the introduction of the Digital Dollar or a Fedcoin may energise drastic changes in the global financial market.

Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.