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One amazing digital dollar asset was great in 2022, but it wasn’t cryptocurrency.
While the value of the cryptocurrency market shrank from a 2021 high of $3 trillion to $1.4 trillion last year, governments around the world are increasingly turning to a different form of digital money: national fiat currency. I’m trying
Perhaps fearing that the future of money is over, the central banks of 114 countries have embarked on various research programs over the past year to bring about the issuance of sovereign cryptocurrencies backed by the federal banking system. We investigated the possibilities and even put them into action. .
As of December 2022, all G7 economies have moved into the Central Bank Digital Currency (CBDC) development stage.
money is not paper anymore
CBDCs are electronic, not physical funds, backed and issued by a sovereign state.
Compared to cryptocurrency tokens, which are digital assets of value, CBDCs act as true fiat currencies.
As reported by PYMNTS, a recent multi-year project by the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology (MIT) Digital Currency Initiative has proven the technical feasibility of a CBDC in the United States.
Further findings from the project are expected to be published in early 2023.
Separately, the New York Federal Reserve, along with a consortium of major commercial financial institutions such as BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, Trust, U.S. Bank, TD Bank, Wells Fargo ” We are implementing a digital currency project.
“If the creation of a CBDC is justified, we strongly agree with the Federal Reserve’s view that a middle (two-tier) distribution model is preferable for the needs of the U.S. economy to maintain its role as a financial intermediary. Mastercard, which is involved in the New York project, said in an official statement:
Holding and transferring money digitally is nothing new to consumers and businesses that have relied on bank accounts, online transactions, and payment apps for years.
However, the forms of currency used in these digital transactions are generally the liabilities of commercial banks and other private entities.
The digital dollar issued by the CBDC becomes a liability of the Federal Reserve just like paper currency.
Advantages offered by CBDC include ultra-fast payment speeds and much larger transaction throughput compared to most options currently available, including payments across both Bitcoin and Ethereum blockchains. increase.
A Boston Fed study established a technical baseline for CBDC transactions of 170,000 to 1.7 million transactions per second. In this project, he was able to successfully complete almost all transactions (99%) within 5 seconds.
Trial observers said this highly efficient “real-time” payment speed could revolutionize both money and payments.
personal freedom and economic freedom
In March 2022, President Joe Biden signed an executive order calling for American leadership to explore the potential of CBDC.
Despite this presidential endorsement, the Federal Reserve Board’s CBDC initiative is in contention on the Capitol.
Bitcoin, the most famous and most widely held cryptocurrency, is a politically neutral monetary system whose decentralized peer-to-peer nature prohibits identity tracking and personal information is not collected. On the other hand, CBDC is seen by some as representing the opposite. The “freedom” of crypto is due to its implicit governmental ties.
This has led some observers to believe that the Federal Reserve is using CBDC to collect personal information about its citizens and leveraging its digital dollar transactions as a surveillance tool to target specific individuals or subsets of the population. There is growing concern that they may be tracked. Freeze your account or ban certain purchases.
As a result of these concerns, Minnesota Congressman Tom Emer introduced a bill that would prohibit the Federal Reserve from issuing CBDCs directly to individuals.
The proposed bill has been read twice and referred to the Commission on Banking, Housing and Urban Affairs, awaiting further action.
Emmer did not respond to a request for comment from PYMNTS.
what’s next?
With cocoa farmers in Central America now able to digitally communicate in real time with wholesale and retail customers around the world, keeping money moving through systems and infrastructure designed for the age of paper money may seem dated. I can’t.
Eleven countries, including the Bahamas, Jamaica, and Nigeria, already have their own digital currencies in circulation.
The U.S. Federal Reserve’s feasibility projects, both completed and ongoing, use clear language to be “policy agnostic,” highlighting the potential benefits and benefits of CBDCS. It indicates that it is intended to investigate risks and not to influence legislation.
In comments to PYMNTS earlier this month, a Boston Fed spokesperson emphasized that their work in researching CBDCs is “purely academic.”
The Federal Reserve has yet to make a decision on whether to pursue a CBDC, much less implement it, and it remains to be seen whether that stoic stance will change in 2023.
For coverage of all PYMNTS cryptocurrencies, visit every day Crypto Newsletter.
PYMNTS Data: Why Consumers Are Trying Digital Wallets
According to the PYMNTS survey, New Payment Options: Why Consumers Are Trying Digital Wallets, 52% of US consumers will try new payment methods in 2022, with many choosing to try digital wallets for the first time. did.
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