Fear of a Digital Dollar
Bloomberg Businessweek|March 29 - April 05, 2021
Central bankers are looking at virtual currencies that could work without banks
Joe Light

The world is about to get an early glimpse at the Federal Reserve’s work on a new digital currency. Wall Street is not thrilled.

Banks, credit card companies, and digital payments processors are carefully watching the push to create an electronic alternative to the paper bills Americans carry in their wallets. Some call it a digital dollar, and others call it a Fedcoin. As soon as July, researchers at the Federal Reserve Bank of Boston and the Massachusetts Institute of Technology, which have been developing prototypes, plan to unveil their work, says James Cunha, who leads the project for the Boston Fed.

A digital currency could fundamentally change the way Americans use money, leading some financial companies to lobby the Fed and Congress to slow its creation—or at least ensure they’re not cut out. “Everyone is afraid that you could disrupt all the incumbent players with a whole new form of payment,” says Michael Del Grosso, an analyst for Compass Point Research & Trading LLC. The banks’ main trade group has told Congress a digital dollar isn’t needed, while payment companies such as Visa Inc. and Mastercard Inc. are trying to work with central banks to make sure any new currencies can be used on their networks.

A U.S. virtual currency could still be years away. And it’s unclear how a digital dollar would interact with the existing global payments network. Still, the U.S. and other countries seem committed enough to digitizing their currencies that it’s making financial industry executives nervous. “The fire has been lit,” says Josh Lipsky of the GeoEconomics Center at the Atlantic Council, a think tank. “The world is moving very quickly on these projects.”

The growing popularity of Bitcoin, Ethereum, and other cryptocurrencies, whose market value has grown to more than $1 trillion, inspired the projects. Unlike those privately created tokens, the new currencies would be issued by central banks as an alternative to paper bills. Cash wouldn’t go away, but its use would likely decline.

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