The use of distributed ledger technology by central banks could threaten the US dollar as the world’s fiat currency.
This was the fear offered by Bill Foster, a Democratic Congressman from the State of Illinois.
“I’m concerned that if a significant central bank could issue a digital currency that it would have the potential to supplant the US dollar for many transactions and even as the reserve currency around the world.” Foster stated. “Despite the reports that they’re exploring it, countries like the Russia and Venezuela are not really credible economies that could issue fiat currencies that would supplant the dollar, but if however, the ECB (European Central Bank) were to issue digital euros then I think the entire world would adopt that for many digital transactions which would have benefit to consumers and a number of risks associated with that as well. If there are really a credible threat that a digital currency could supplant the dollar we have to be prepared to respond to that threat as well.”
Foster made the statement during a hearing in the House Financial Services Committee sub-committee on Monetary Policy and Trade.
The Chairman of the sub-committee, a Republican from the State of Kentucky, also noted that there is widespread difference around the world in embracing digital currency.
He noted that China and Vietnam have all but outlawed trading in digital currencies, while Switzerland and Malta have taken a laisse faire approach.
Meanwhile, countries like Tunisia and Ecuador, Barr noted, have embraced it so much that they have digitized their own central currency.
Some other highlights from hearing included this.
“The convenience of electronic transfers has led to a decline in the use of cash relative to commercial bank deposits in many countries around the world… It seems likely that the use of cash for transactions will continue to fall and it is worth noting that there is tipping point at which even if customers seek to use cash, businesses and banks will not want to deal with it.” Said Dr. Rodney J. Garratt, Maxwell C. and Mary Pellish Chair, Professor of Economics, University of California Santa Barbara. “I believe that the Federal Reserve will, at some point in the future, need to respond to the disappearance of cash and I have given some reasons why it might consider offering some form of retail-oriented central bank cryptocurrency. There are, however, many issues related to the viability and security of this technology that need to be fully resolved before adoption. Moreover, a much deeper understanding of the monetary policy and financial stability issues is needed.”
“Even Bitcoin remains far from being a generally accepted medium of exchange, but all cryptocurrencies can—and many do—function as a money substitute.” Said Dr, Norbert J. Michel, Director, Center for Data Analysis, The Heritage Foundation It is certainly difficult to imagine a cryptocurrency replacing the U.S. dollar as long as the Federal Reserve acts as a moderately good steward of the national currency, but it is for this very reason that Congress should eliminate barriers that impede people from using their preferred medium of exchange.”
“There is no doubt that the digitalization of financial transactions, records, access to information, and communication will continue to increase, and that the electronic networks underlying the activity continue to grow more intense and omnipresent. But the fundamental nature of money, it seems to me, will not change… It is clear that having a fiat currency is far too precious and profitable for governments for them ever to go back to a government currency backed and convertible into actual assets, whether gold coins or otherwise.” Said Alex J. Pollock, Distinguished Senior Fellow, R Street Institute. “An increase of the monopoly power of central banks, which already have too much, should be avoided.”
All three were witnesses in the hearing.
Among the harshest critics in the Congress of crypto-currencies is Brad Sherman, a Democratic Congressman from the State of California, and true to form he noted, “there is nothing that can be done with crypto-currency that cannot be done with sovereign currency that is meritorious in society.”