Is the Fed Ready for Its Own Digital Currency?

Close-up on computer circuit board with dollar sign.
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The Federal Reserve Bank of the United States plans to issue a paper this summer on the topic of a federal digital currency, a move toward the U.S. offering its own crypto version of the dollar. This follows similar work by the government of China.

See: How To Invest In Cryptocurrency: What You Should Know Before Investing
Find: Cryptocurrency Jargon: A Guide for the Crypto-Curious

Hype aside, cryptocurrency boils down to two parts: a new currency and a system for tracking payments made in it. As a currency, it doesn’t have much use outside of things like ransom payments to computer hackers. As a system for tracking payments, it has tremendous value. Technically, a Fed-issued currency would be a stablecoin, tied to the value of an existing currency, rather than cryptocurrency, which is earned by solving computer programming challenges.

The Federal Reserve Bank oversees payment systems in the U.S. to ensure that transfers between bank accounts and among banks take place. This is important for maintaining trust in the financial system. Through a program known as FedNow, the Fed has been working on a system that would speed up the time it takes for payments to clear. It would also offer access to people who do not have bank accounts. A digital currency could be the mechanism used to make FedNow work.

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See: What Is Chainlink and Why Is It Important in the World of Cryptocurrency?
Find: How the IRS Taxes Cryptocurrency – and the Loophole That Can Lower Your Tax Bill

This is not a sign to go long on Shiba Inu or Dogecoin, however. A central bank digital currency, whether offered by the U.S., China or the European Union, will have no connection to the countless crypto coins being traded today.

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About the Author

Ann Logue is a writer specializing in business and finance. Her most recent book is The Complete Idiot’s Guide: Options Trading (Alpha 2016). She lives in Chicago.
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