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Congress Hearing: Should Central Banks Launch Digital Currencies?

Governments and regulators in different countries are beginning to enter into the cryptocurrency space, in a bid to not just regulate the market, but harness the potentials of blockchain. A few countries like Venezuela have either launched state-backed cryptocurrencies or hinted on the possible release of official cryptocurrencies.

In line with this, the U.S Congressional Subcommittee on Monetary Policy and Trade talked through paramount queries bothering on digital currencies in a proceeding. The inquiry, authorized “The Future of Money: Digital Currency,” appraised prospective domestic and universal application of cryptocurriencies.

One of the subjects of the meeting was about the positioning of cryptocurrency and its suppressed technology, blockchain, on central banks, disputing whether central banks should initiate a central bank digital currency (CBDC).

Giving his opinion on this matter, a professor of economics Rodney Garratt at the University of California, Santa Barbara, stated that the bank has to come to a conclusion if they want “to withdraw completely from providing a payment device for general public” or whether they would rather take on one of varieties of digital substitute.

A senior fellow Alex Pollock at the R Street Institute disputed that “to have a central bank is one of the worst financial ideas of recent times, but still it’s quite conceivable…” He further stated that central bank digital currencies would only serve as an increase in the magnitude, function and competence of the bank, reckoning also that the Federal Reserve consenting to central bank digital currencies would ensue it being the “overwhelming credit allocator of the U.S. economic and financial system”. He resumed:

“I think we can we can safely predict that its credit allocation would unavoidably be highly politicized and the taxpayers would be on the hook for its credit losses. The risk would be directly in the central bank.”

He unraveled that if fiat money begins to be modified into digital form; its essence will not become different, and will continually be emanated by a central bank. While Pollock can visualize some variety of exclusive digital currency financed by assets, he drew inference that it most definitely would not be a “private fiat currency” like Bitcoin. From his perspective, cryptocurriencies are basically indistinguishable as scrip.

Andy Barr the Subcommittee chairman asked if cryptocurriencies can be used in place of money, then Garratt asserted that “in terms of conceptual idea” crypto is a currency “at some extent,” but not a “very good one” presently. Garratt stipulated that it doesn’t productively serve as a channel of trade because its value is changeable. He went ahead to propose that the unstable nature might begin to dwindle if the selection measure gets bigger, insisting that “people have to start using it as transactions”.

Roger Williams Subcommittee vice chairman enquired of the panel what the major hindrances are to the implementation of crypto and blockchain and also how the U.S Congress could be of assistance. The director for the Center for Data Analysis at the Heritage Foundation Norbert Michel mentioned the capital gains tax (CGT) as the principal obstruction, because of the complicated trailing process in observing gains and losses.

Well, whatever the case may be, I stand with a lot of people on this. Although it is necessary for regulations to come into the crypto space, the idea of central banks launching digital official currencies does not tickle my fancy.

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