Why did the race for the national digital currency begin?
Crypto

Why did the race for the national digital currency begin?

By Marco Cavicchioli - 21 Nov 2019

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It is not just China that is working on its own national digital currency.

Recently, in fact, it has emerged that the USA and Japan are also studying similar solutions. 

As far as the USA is concerned, it was the Governor of the Federal Reserve himself who publicly admitted that they are studying solutions of this kind. 

In a letter to Congress, Jerome Powell wrote

“While we are not currently developing a central bank digital currency, we have assessed and we continue to carefully analyze the costs and benefits of pursuing such an initiative in the US”.

In addition, the Governor of the Fed states that the US may be somewhat better positioned than other countries that are considering similar solutions. 

One of these is Japan, given that the Governor of the Bank of Japan, Haruhiko Kuroda, has also stated that the Japanese central bank itself is carrying out research in this direction, although at the moment it has no plans to issue a national digital currency. 

Kuroda said in Parliament: 

“If stable coins backed by companies with a huge customer base are issued globally, that could have an impact on monetary policy and financial system stability”.

It is clear that the Libra project has forced central banks to consider initiatives that would otherwise probably have remained speculation, although there is still a long way to go before the actual issuance of national digital currencies on the market. Only China would really seem to be on the verge of doing so in a few months

This would appear to be a kind of competition between the national digital currencies of the central banks and the stablecoins. 

Paolo Barrai, of Terrabitcoin, actually raises the hypothesis that, if there was an American national digital currency, the USA might oppose the use of Tether (USDT). 

In fact, one of the key points stressed by Barrai concerns the control of the use of money by the authorities. 

USDT can be traded directly, and anonymously, between people using P2P wallets, but this may not be the case for national digital currencies. 

It is currently unclear whether these currencies issued by central banks can also be used with anonymous P2P wallets, such as Tether, or can only be used with wallets that require verification of the user’s identity. In the second case, it is fair to imagine that, once in circulation, states might oppose stablecoins which can be used even without KYC procedures. 

Barrai also points out that a national digital currency could compete with payment systems such as PayPal or credit cards, since it could be used with simple smartphone apps, and transaction costs would be greatly reduced. 

All this could have a significant negative impact on the revenues of the operators of the classic payment systems, so much so that Barrai says

“This would result in credit cards becoming obsolete overnight”. 

Therefore, the path for such initiatives seems to be very steep. 

Marco Cavicchioli
Marco Cavicchioli

Class 1975, Marco teaches web-technologies and is an online writer specializing in cryptocurrencies. He founded ilBitcoin.news, and his YouTube channel has more than 11 thousand subscribers.

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