The US Federal Reserve is discussing with the MIT Institute opportunities to issue digital dollar.
The former chair of the CFTC, Christopher Giancarlo, said that the United States needs to intensify its research into the digital currency issued by central banks.
This comes as the Federal Reserve conducts its research and experiments on using the digital dollar issued by the Federal Reserve.
Christopher Giancarlo is currently working with the consulting company Accenture on experimental programs that will test different use cases of the digital dollar in the United States in what is known as the “digital dollar” project, according to “Yahoo Finance.”
The United States finds itself lagging behind other countries in payments infrastructure. In 2019, the Bank of Mexico launched the Cobro Digital (CoDi) system that allows users and merchants to transact in digital pesos using QR codes. The People’s Bank of China recently began user testing of the digital yuan, which would allow transactions even without an internet connection.
Does United States need to Issue a “Digital Dollar”?
A Bank for International Settlements survey showed that 80% of central banks worldwide are looking for a digital currency issued by the central bank.
David Treat, who leads blockchain technology at Accenture, said his team has already worked with most G20 central banks on cryptocurrency projects.
The Federal Reserve is working with the Massachusetts Institute of Technology (MIT) to build and test a virtual currency issued by the central bank.
Despite the difference in the mechanisms of its operation compared to Bitcoin, the digital dollar appears to compete with cryptocurrencies and is an archenemy for money transfer companies.
The use of the digital dollar is a strongly preferred option during the coming period in the context of central banks’ race towards a unique digital transformation in their currencies that keep pace with the requirements of the new era.
The Digital Dollar: Competing?
Of course, any digital currency project is directly dealt with as a primary competitor to the most prominent digital currency in the world – Bitcoin.
Despite this, Noah Smith, a writer for Bloomberg, says that there are fundamental differences between Bitcoin and the digital dollar.
However, this does not prevent the two currencies that will provide similar services, namely the transfer of funds at a low cost. Here, it is evident that the digital dollar may be a competitor to Bitcoin. Still, it is an enemy of “existence” for money transfer companies such as “MasterCard.”
How the digital dollar works
The digital dollar will be a more straightforward payment system for Americans, and it is assumed that it will compete with Bitcoin and other cryptocurrencies. Still, there are few rationales for working with this electronic dollar, which the government will manage.
According to David Andolvato, vice president at the Federal Reserve Bank of St. Louis, FedCoin will allow people to conduct financial transactions without opening a bank account as it would with physical cash.
But the digital dollar will work through a mobile app rather than using the physical money wallet.
Andolvato argued that stealing this currency would also be more complicated than stealing money from bank accounts that could be hacked. In addition, it would leave an electronic footprint allowing the government to track criminals through it if necessary.
The difference between the Fedcoin and Bitcoin
It is essential to note that the digital dollar does not need to use the decentralized processes that enable Bitcoin to trade.
Bitcoin was designed to operate without a reliable intermediary, such as a bank. So, when two people conduct a dollar transaction, the bank checks and records the transaction and makes sure that funds are deducted from one account and entered into another account.
But when Bitcoin is used, this verification is done instead by a distributed network of computers called “miners.”
The electronic payment system managed by the Fed will compete with existing payment apps, such as PayPal, Venmo, Stripe, Visa, and MasterCard, which will put those companies at a disadvantage; Because they all require an intermediary of banks.
But the Federal Reserve has its bank; And because the Fed is part of the government, it doesn’t even need to profit. Therefore, the payment service it will provide will be cheap, and even the fee payment services might be suspended.