The rising popularity of cryptocurrencies is a clear sign that they will be the future of the global monetary systems. The benefits that they offer are far too good for governments to ignore, thus reports that some governments in multiple countries are exploring the idea of central bank-backed digital currencies.

Jan Hatzius, a Goldman Sachs analyst, is convinced that the U.S Federal Reserve will likely roll out its digital currency, although he expects it to be a slow rollout. Hatzius noted that although the idea of a Fed-backed digital currency is exiting, central banks around the world are not so keep on undermining the existing financial and payments systems.

Federal Reserve Chairman Jerome Powell recently revealed plans to release a paper this summer that will highlight the pros and cons of a CBDC. The Fed plans to use the paper to gather public opinions regarding digital currencies in the hopes that the information gathered will help to determine whether it is a smart move.

Powell’s statement revealed that the Fed is actively considering a CBDC rollout, although he also noted that it would likely be used to complement paper money rather than replace it. The UK and China are among the numerous other countries that are actively exploring the use of CBDCs. However, China seems to be more aggressive with its approach. Some reports suggest that the Chinese government is exploring a feature that will facilitate the expiry of a digital currency to encourage spending.

What would be the implications of the digital dollar?

China’s authoritarian approach seems to exercise too much monetary control over its citizens, which would likely not be the case for a digital dollar. The fact that the Fed plans to involve the opinions of the masses is already an excellent step in getting it right. Privacy is one of the critical concerns regarding the use of central bank digital currencies. Some believe that the approach would give governments more control since money will still be centralized, but having it in the digital realm makes it easier for governments to interfere with financial privacy. Imagine a world where governments can automatically tax your money directly from your account.

There are also other concerns, such as the susceptibility to hacking. The latter was a major problem for cryptocurrency exchanges in the early days. Governments will have to double down on security measures to avoid such issues. On the flip side, CBDCs will pave the way for more financial flexibility and a smoother banking system. Traditional systems are still slow and expensive.

Blockchain technology will make it cheaper and easier to move money through the economy, thus unlocking higher efficiencies. These benefits highlight why the Fed is all of a sudden more interested in digital currency. China’s digital yuan threatens to become the preferred option for global commerce due to its flexibility over traditional fiat. If the Fed fails to act fast, the dollar might become less attractive for international settlements.

A CBDC would allow the Fed to deploy monetary policy such as stimulus money more effectively. Another reason for the increasing interest is that it would make it easier for unbanked people to access financial services digitally since almost everyone has a phone. However, many people are still not able to access banking services easily.

Successfully launching a CBDC, especially on a decentralized blockchain network, may offer a slew of benefits such as financial stability and price stability. The wider accessibility of digital currencies will facilitate more economic activity. Global governments are currently going through a phase of excessive debt, which increases the risks of financial collapse. CBDCs may create an opportunity for central banks to shift from a debt-based economy to a debt-free economy.