A recent statement on Wednesday from a FED’s official reported that U.S Central bank has started to consider the idea of digitalizing the U.S dollar. The U.S dollar has served the role of the world’s reserve currency for a long time; a role that may now be jeopardized, according to the regulators.
Digitalizing U.S Dollar Can Help Preserve Its Reserve Status
Mr. Rob Kaplan, the current president of the Dallas Federal Reserve Bank was reported stating that while no decision has been made, the Central bank is exploring the option of digital currency to preserve the value of the U.S dollar.
Mr. Kaplan is a prominent name in the league of FOMC members with the most extensive experience in capital markets. Having previously served as an executive at Goldman Sachs, he has expressed his concerns for remarkably higher interest costs for the United States of America in an event that a foreign entity (government or otherwise) manages to receive large-scale adoption of a digital currency that they develop.
His remarks followed Mr. J. Christopher Giancarlo’s (Former chairperson for Commodity Futures Trading Commission) comments that in order to preserve the reserve status of the U.S dollar, developing a digital currency is slowly turning into a necessity. In his capacity as an advisor to a trade group (Chamber of Digital Commerce) that primarily deals with crypto or blockchain-related policies, Mr. Giancarlo has highlighted that owing to a dominant role of the U.S currency in international trade and the U.S government in global affairs, it is a common practice for foreign central banks, investors, and commercial banks alike to value the reserved assets in USD.
National Debt Could Sharply Increase If USD Loses Reserve Status
In an event that the U.S dollar loses its reserve status, the repercussions could be huge, said Mr. Giancarlo. U.S Treasury bonds would no longer be in demand that will consequently push the national debt higher due to the rise in interest rates. He further invited the attention to the ever-rising figure for national debt that is now close to an unrivaled $23 trillion.
Mr. Kaplan extended on the statement and placed a figure on the probable increase in interest rates. Provided that the U.S dollar no longer remains the reserve currency, he quoted, and the interest rates hike by only 1% in response, it will make up as much as $200 billion of additional interest.
The current chairman of the Federal Reserve, Mr. Jerome Powell, along with some prominent lawmakers, have already voiced their concerns for Facebook’s Libra cryptocurrency and the potential for it to receive such widespread adoption that may threaten the U.S financial system at large.