Speaking during the online Atlantic Council webinar, the U.S Deputy Treasury Secretary, Justin Muzinich, said his department, alongside the Federal Reserve, is looking at launching a central bank digital currency (CBDC) tied to the dollar in the future.
This announcement follows a trail of the Federal Reserve’s previous efforts to launch digital dollar wallets liable to the central bank. Federal Reserve Bank of Cleveland President Loretta Mester, revealed last month that legislation is being set up so each American would own a digital dollar account with the Feds.
Notwithstanding, the Boston Federal Reserve announced in August that they are testing over 30 blockchain projects to prepare a digital dollar. However, the research and development process for a CBDC is set to take years to complete – having begun in 2015 – the Boston Fed said.
Muzinich stated the learning curve in launching a digital dollar on a distributed ledger would produce “efficiency benefits and cost benefits.” He further targeted the slow U.S. efforts in introducing its own dollar:
“And I also think, more broadly, it’s important for the government to embrace innovation and not be scared by it.”
On regulation of a digital dollar, Muzinich states governments worldwide – especially Europe – should work to regulate cryptocurrencies globally. This arises from the different functions of cryptocurrencies, away from payments.
Questions of money laundering have taken center-stage in the adoption of cryptocurrencies. Still, other issues such as financial stability and monetary base of the cryptocurrency should also be put in check. To keep the consumers and users of the digital dollar safe and secure, Muzinich stated the existing laws governing fiat currencies should be extended to crypto.
“Treasury has made it clear that the obligation to comply with U.S. laws is the same, regardless of whether a transaction is denominated in traditional fiat currency or digital currency.”
“Existing laws apply to digital assets in no uncertain terms.”
He explains that even if cryptocurrencies comply with the KYC/AML/CFT rules, there’s still a danger of foreign parties disrupting the monetary base creating financial instability. This could arise if a stablecoin issuer shifts its reserve ratio from fully backed to partially backed, or changing the composition of assets in reserve.