U.S. is considering a radical rethinking of the dollar for today's digital world
npr.org
npr.org
This is straight up a competitor for the digital yuan (Chinese RMB), and the most valuable use cases from a US federal perspective are international uses (mostly developing countries).
Some ideas:
- The USD is used as a default currency in many places for many transactions, but there is friction in the system, especially for small payments, and especially with hostile regimes.
- The USD as a default currency gives many benefits to the US (e.g., essentially free money).
- China and the US are and will be battling for the market of the default currency of non-domestic microtransactions with digital currency. This is just a part of that battle.
- There may be some benefits (or not) for domestic users of the eUSD, but that is not the main purpose of this currency. If the eUSD doesn’t resonate for you, then consider that you may not be the target market.
- Note that this currency will most likely be presented/marketed in a very different way than I am suggesting above, and this will be more for political reasons than anything else.
Edit1: Note that when taken in this light, certain aspects of the eUSD like non-distributed ledger, centralized control, etc. should make more sense.
Edit2: Here is a link with more info:
https://www.mauldineconomics.com/frontlinethoughts/a-giant-c...
American cash usage is already way way down and has been falling for the last 3 decades. That this is often because of expensive banking and credit card interchange networks has to be of some concern to the US government, those fees add up to extra friction in the economy, and a digital currency looks really appealing even for domestic use (see what happened with using WeChat for payments in China).
In some circles, especially for very large cross-border transactions, this is definitely true.
That said, for microtransactions in developing countries, this is less of an issue. China will go out of its way to make this a stable and easily convertible currency for folks in these markets.
There is a summary of the ideas here:
https://www.mauldineconomics.com/frontlinethoughts/a-giant-c...
More can be found on Google/YT.
Really the issue is restrictions on capital inflows and outflows. That bartender can say whatever things are worth in digital CNY at any given time but if they become unredeemable at any time they become totally useless. Any bank that starts restricting withdrawals is at risk of a bank run, and digital CNY would be no different. PBOC has a history of tightening the screws on capital flows, there's not really a reason to start trusting it with digital CNY.
You're assuming you will be given a choice.
This is not true. USD as a default reserve currency is bad for US since US is no longer a net producer economy. What happens is other countries like China which are net producer economies take our paper dollars and invest it in our hard assets - such as stocks and real estates essentially inflating their prices and pricing out many US citizens. If you look at the foreign ownership trend of these assets over recent years, this is quite clear.
Reserve currency status allows the US to advantageously print away its debt and more easily navigate global recessions. It's essentially a superpower, and the US won't give it up easily.
While it's true that the US is not a net producer, it has a best in class service economy. Software, entertainment, financials.
Soon China won't be able to cheaply afford to run its factories and it too will be looking to outsource to developing countries. This is why it's morphing into a service economy as well.
Manufacturing hopping from country to country is a great tool for bringing entire nations out of poverty. The lack of low hanging fruit for developed economies makes it harder for the middle class than in earlier generations (midpoint in the S-curve), but bringing manufacturing back won't work without tariffs and a shut off of cheap imports.
While the US could do well to onshore production of critical components (semiconductors, pharmaceuticals, chemicals, steel, etc.), or to place them in more friendly international jurisdictions (bonus if they're not concentrated to one country/region), the long-term future for production is automation.
> While the US could do well to onshore production of critical components
And how exactly is the US going to do that? The prices of raw material/oil is decade high and supply chain is completely broken. These things are going to cost even more money and going to need more money printing. It took China to build these things 30yrs even doing so at the record pace.
Reality is the largest buyer of US debt is now the Fed. Any attempt to control the inflation at the backdrop of 33 trillion debt with higher rates is going to seriously raise the possibility of sovereign default. So hyperinflation and devaluations is the only way out. And the resulting political and social unrest follows.
I don't follow this line of thinking at all. Could you explain how our middle class could go back to manufacturing and earn a decent wage? As long as there is a global market and we're not isolated from it, we cannot compete from a wage perspective.
> > While the US could do well to onshore production of critical components
> And how exactly is the US going to do that?
I didn't say "onshore everything". Look at the money we're spending on Intel and TSM to build plants in CONUS. We do that with key chemicals and pharmaceuticals. We don't need to make textiles or goods we can source from anywhere.
> Reality is the largest buyer of US debt is now the Fed. Any attempt to control the inflation at the backdrop of 33 trillion debt with higher rates is going to seriously raise the possibility of sovereign default. So hyperinflation and devaluations is the only way out. And the resulting political and social unrest follows.
I'm not sure where this came from. I think we have a handle on things. Others agree. If we didn't, the market would have way worse uncertainty priced in.
Curious what do you expect to happen to the middle and working class people if the US loses its reserve currency status? How do you think things would improve for them?
Dollars in things like Venmo are already digital currency. I have some balance and I can send that balance to various places.
How will this actually help under banked people? Would the people who don't have a back account today want to use digital cash?
Fees are big issue, but they are for most part baked in and keep many people employed. It seems it would very difficult to make a policy change that would harm visa and Mastercard.
Offline transactions are very unlikely to happen as well, people will double spend if transactions work offline.
They only leaves surveillance as the goal. Being able to track cash transactions that works otherwise be untraceable.
because it disintermediates the entire payment sector, and every single dollar going into the pockets of banks /payment processors is going to go to consumers, or be returned to the public.
It'll help underbanked people because by virtue of being a US citizen, or whatever jurisdiction we're talking about, you'll have free access to a costless payment system. It'd also unify and standardize payments across an entire currency zone, getting rid of the bazillion API / interface issues that the currently glued together system has.
The benefits are pretty obvious. As to employment, if we're going to create employment through bullshit jobs we might as well set up a toll booth every ten meters until there's no unemployment or have people roll stones up and down mountains.
Unfortunately, the recent proposal specifically reassures commercial banks that any US CBDC will be intermediated (right on page 2) [1]. Board of Governors can't risk jeopardizing their speaking fees.
Individual FedAccounts via USPS locations is the way to go for the underbanked [2]. But, disappointingly, this is not that.
[1] https://www.federalreserve.gov/publications/files/money-and-... [2] https://dx.doi.org/10.2139/ssrn.3192162
I doubt that. It would cut some costs and profit margins, but it wouldn’t be free to run the new system either. Someone needs to run the infrastructure, provide customer support, resolve conflicts, fight fraud, create apps and integrations, etc.
It seems unlikely that central banks will do all of it themselves. The payment processing industry won’t go away, but the system will be simpler and they will have some welcome competition in some areas, which should depress the fees in high fee countries such as the US. In Europe it wouldn’t change much in terms of cost I think.
As for "privacy" and "controlling what you can do with your money", Visa and Mastercard have pretty much full control over that now anyway, unless you're dealing with pure paper cash, which almost no one does anymore.
Or creating a new digital currency that 20,000 banks AND every business has to figure out how to accept?
You hand waved away "creating an app", but that app has development and design decisions that need to last, needs to get adopted by people, and needs to be accepted.
A free banking policy is significantly easier and would cost the government less.
At the risk of sounding conspiratorial, I think this is part of an overarching move to slowly phase out physical cash co we could have practical negative interest rate one day. Otherwise it is not actionable as long as people could literally stockpile money under their mattress.
While there are plenty of individual households that would probably make the decision to store money under their mattresses in a negative interest rate environment, those households are not where most of the cash is. In general as an entity (be it individuals or bussinesses) have more money, they become increasingly aware of the costs of having many.
A convenience store that has security cameras fixed on the cash registers; reguarly has a manager cycle cash from the registers to a safe, and hires an armored car to transport cash to the bank is well aware that keeping cash as physical cash is not free. It is nice if the bank pays you to keep your cash in a bank account; but if the bank decides that you need to pay a reasonable them to keep your money safe; that is a price that most people (when weighted by the amount of money they are handling) would be willing to pay.
The threat of storing money as physical cash still puts a lower bound on how low interest rates could go; but that is far below 0%
In practical terms, I suspect it would be politically untenable to expose negative interest rates to individual savings accounts, but even a "small" subsidy allowing individuals to maintain personal savings accounts up to, say, $250k would still maintain most of the economic goals of a negative interest rate without the political backlash.
[0] Not that cash insurance isn't a thing, but you need to submit actual information to get a quote from anyone.
I agree it's no coincidence that this development is occurring when interest rates have dropped to zero. A negative interest rate is most likely the main motivation for central bank digital currency. How else will the asset market be propped back up after the next crash?
I don't think the Fed is going to go to a digital dollar just to cut Fed funds to negative. It just doesn't seem like it has enough reward for the risk and stress on the banks.
I would think it is more to get rid of all this useless change in circulation, don't have to worry about the cost of paper bills then.
Yes, but I would prefer to NOT use a private network like Venmo if possible. For one, if it was government-issued with government benefits, everyone would have it, not just tech savvy people. Most Americans don't have Venmo, but almost everyone has some form of government ID (or would get one if they could receive some benefit).
They'll play this as a safe something, but it's really all about taxes.
So many people and even industries today run afoul of taxes. If you didn't know or disagree, you've never worked or lived around the less privileged.
Example: I called to have my windshield replaced last month by a local company. The guy said 'if you pay cash, 307 dollars. Credit card you need to add tax and fees, so 350.'
Also, at least in the southeastern US, nearly every gun store heavily dissuades you from using anything but cash.
There’s no reason to believe any organization of humans has your personal interests at heart.
Ostensibly politicians can be replaced. Despite believing government to be inherently corrupt, we still seem to think the ledger of ownership is inherently correct and incorruptible.
The mental gymnastics everyone goes through to demonize government and accept privatization which locks them out of accounts, absconds funds, and offers no path to remediation, resulting in posts here hoping a Big Tech Corp worker happens to be browsing is pretty stunning display of how media has influenced our beliefs
[1] https://www.irs.gov/businesses/small-businesses-self-employe...
The Biden administration has, however, provided the IRS more power by requiring financial institutions to report transactions over $600 to the IRS, a significant reduction fdown from the previous $10K threshold.
This new law went into effect in 2022 and shows the govt’s desire to shake down the middle class for more taxes, while eliminating privacy.
That won't matter much when people inevitably start to trade in a physical proxy.
Of cause, because on a government controlled digital currency there would be no anonymous transaction and like the Chinese anyone with a low ESG score can be stopped from spending their cash. Yes, all across the world a social credit score called ESG is adopted by banks.
Or what if they decide you used up your quota? No flight, no meat or no car ride for you because they won’t let you spend your money
It is what makes presidential elections scarier each year: all it takes is one president with a false flag attack (or maybe not even that). Bush had the opportunity, but not really the means or the motive. Obama had the means, but not really the opportunity or the motive. Trump had the motive and means, but not the opportunity.
In a more ideal world, the "social karma" would be a good thing: crypto and such tracking could enable actually effective environmental regulation and rewards. It could enable penalizing previous revenues/profits/gains for economic activity that turned out to be deleterious.
For example, I would very much like to be able to reduce the value of all profits from oil by 90% historically, if I had such powers as god-emperor treehugger.
Crypto could provide such powers. Of course they won't be used properly, and tyranny. But it is theoretically possible.
My point isn’t that some of this can’t be done now, but that this tech is a force multiplier as evidenced with how China use this kind of tech for social control
Systems like this that are marketed assuming an enlightened selfless group control it fails to take human nature into account. It never worked before and with the means we have no it will fail spectacularly.
Certainly the WEF and it’s Young Global Leaders haven’t shown selfless restraint so far. Eg Boris Johnson, Trudeau, Markel all were caught partying while forcing everyone else to do the opposite. They all become wealthy while in power.
On a positive note, it was nice to see the extremely negative reaction from social media at the time. Hopefully that got us an extra decade before someone more serious than a shitty think tank (eg. a government) makes a push for it.
Boston Fed releases report, source code of digital currency prototype study - https://news.ycombinator.com/item?id=30233755 - Feb 2022 (154 comments)
1. I trust the USG.
2. The value of a currency comes from the issuing entity, and acceptance by merchants, not speculation on a blockchain (or any other technology).
3. Since it is centralized it will be reversible in court if hacked or mistakenly sent.
4. Since it is centralized it will be able to handle millions of transactions per second assuming they don’t screw up the technology.
If they get this right it will simultaneously render all crypto useless (except for crime) AND actually deliver on the false claims of crypto which never materialized in the past 10 years.
In one aspect this would absolutely fail to address an entire section of the crypto market - privacy. You can attempt to make the tired “if you have nothing to hide” argument against it, but I don’t think that will change a privacy conscious person’s mind to suddenly accept centralized spending tracking by the gov.
The other area this would utterly fail to address would be the existence of a central authority. Failure to understand why people in crypto look so negatively at centralization is a failure to understand why Bitcoin exists in the first place, and how it was a direct response to the 2008 crash and subsequent reaction of the USG. I’m sure a portion of the modern day crypto “investors” would migrate to whatever the USG puts out, but it certainly wouldn’t be embraced by a large part of the overall crypto community.
The main cryptocurrencies in use right now fail both of those tests and for the rest... Well, they have to be weeded out, too many experiments and scams at the moment. We need to check the survivors in 10 years.
2. Currency is a major tool for social stability and requires intervention occasionally. Yes, a free market for currencies is socially very dangerous.
Modern crypto? Well it’s changed a lot over the years. Sure a lot of it is about “innovations”, and there are some genuinely good ideas out there, but a lot of it feels like the transition from the early web to what we have now. That can be good or bad depending on your point of view.
Please do stay away if you're not interested, we don't want you either.
FDR defaulted on the gold bonds, stealing from those bond holders.
Just last year, the government took 7% of your dollars (via inflation).
> The value of a currency comes from a government
More specifically, it comes from the issuing entity. For example, a cashier's check is only as good as the bank that honors it. Same for a credit card.
Did you know that banks historically issued their own currency? I suppose everyone has forgotten American Express Travelers' Cheques, which were bank issued currency.
You might, but I and many[1], many[2], many[3], many[4], many[5], many[6], many[7] others don't.
[1] https://www.latimes.com/archives/la-xpm-1997-03-03-mn-34339-...
[2] https://www.cnn.com/2013/03/05/politics/obama-drones-cia/ind...
[3] https://densho.org/learn/introduction/american-concentration...
[4] https://www.iraqbodycount.org/
[5] https://consortiumnews.com/2012/01/23/reagans-hand-in-guatem...
[6] https://apnews.com/article/business-33a88feb083ea35515de3c73...
[7] https://www.nytimes.com/2020/02/24/us/supreme-court-case-no-...
Please note that none of those are one-off incidents or perpetrated by a rogue party. All of the above were concerted efforts by the United States federal government that were carried out for years on end and, in almost all cases, have yet to be formally apologized for, with some continuing as I type this.
Edit: additionally, the Federal Reserve is not part of the United States government, and is instead owned by Citibank, JPMorgan, Morgan Stanley, Goldman Sachs, BNY, HSBC, Deutsche Bank, Mizuho Bank, and the Industrial and Commercial Bank of China, among others.
https://www.stlouisfed.org/in-plain-english/who-owns-the-fed...
https://www.institutionalinvestor.com/article/b1kh4p10qysrhv...
In 2008-2022 estimated 288,000 Iraqi's died, due to war.
2020-2022 estimated 926,029 American's died, due to covid-19.
I wonder when we will understand the true impact ~1m dead American's had on our nation.
Who wants money with surveillance and control built into it? Imagine a future where you post some wrongthink on social media and your dollar crypto wallet is automatically disabled by a precrime AI.
No thanks.
It seems like a ploy to go after the little guy while negating to take a look at tax evasion schemes for the individuals who control the biggest chunk of wealth.
> With a digital dollar, you could in theory eliminate those middlemen. If you wanted to buy a sandwich, for instance, you could transfer money from a digital wallet directly to a cashier.
Cash has no ?middleman. You trade one set for… how direct is the transfer? Who is extracting the money from your account, depositing into theirs?
Can you invest them and get returns? Put them in the bank and get returns?
When you pay the deliveryperson, florist, kid who shoveled your driveway in cash, there are zero participants between you and that person.
How you got that cash depends on a physical supply chain. Generally, going to an ATM is pretty easy.
Our payment system is currently the worst of both: only electrons and magnetic regions, but lots of them in the way siphoning off their cut.
Donate $1 to some charity, and later it turns out this charity gave to Trump. And you'll be cancelled for life!
B. Most Trump supporters voluntarily make their preference known
[1]: https://www.fec.gov/data/receipts/individual-contributions/
Also ran into this interesting history-fiction comparative analysis from 2004: http://www.oilempire.us/brazil.html
[1] https://www.theblockcrypto.com/post/111648/china-digital-yua...
Would it just be a pointer (a digital key sitting on your device) to an account at the central bank holding your dollars? Or is something more elaborate?
Would it allow anonymized holders of digital USD? If not how would they handle know-your-customer (KYC)? If so, how would they prevent evil people like Kim Jong Il or Carrie Lam holding USD?
The last question: some people have rooms full of 100$ bills. Some of them are evil.
Examples
https://www.reuters.com/world/asia-pacific/russia-says-afgha...
https://www.cnn.com/2019/09/08/africa/sudan-al-bashir-trial-...
A technology people's fallacy is to expect technology to solve social problems. They are best solved socially.
There is a local saying here "When fences eat crops, what can you do?" or "Fox guarding the hen-house", can you blame its instincts.
This has the potential to greatly simplify the entire banking infrastructure.
It would also make it harder to lend what you don’t have. Current banking balances are easily fudged. Stable coins are real records you can only lend if you have them.
I could see this driving up interest rates on savings accounts similar to how crypto savings accounts have decent returns.
Surely they couldn't blacklist stolen dollars that may have been subsequently spent multiple times. Would they mint new dollars to replace funds that have been proven to have been stolen (i.e., providing similar protection that bank and credit card customers have now)?