A Glimpse into the Future of Money: The Potential Impact of a Digital Dollar on Currency Usage

U.S. President Joe Biden has commissioned a government agency to study the creation of a digital dollar, joining more than 100 countries that are already exploring or piloting plans to use their own central bank digital currencies to implement currency future.

This move could reshape the world’s financial system due to the dollar’s ​​central role in business and security investments by global investors and governments. However, will the benefits of this move outweigh the risks? U.S. government agencies have been asked to study the potential risks and benefits of creating a digital dollar. These issues include consumer protection, financial inclusion and the illegal use of digital assets.

However, even if the U.S. government decides to push for such a move, it may not happen anytime soon, Darrell Dufie, a digital currency expert from Stanford University in California, told TechXplore. He said it could take years as authorities have to look at aspects such as the technology used.

What will a “digital dollar” look like?

The digital dollar is just like the banknotes and coins issued by the U.S. Federal Reserve Central Bank. Just, it will be in digital form. Rather than depositing them into a bank account or using them through an app, the digital dollars would be registered in an account with the Federal Reserve.

Additionally, unlike cryptocurrencies, whose valuations are highly volatile, the digital dollar will be worth the same as paper currency.

What are the potential benefits of a “digital dollar”?

White House officials said the explosive growth of digital assets without oversight could pose risks to people, business stability, the financial system and national security. This move could address this lack of oversight.​

In addition, as is currently the case, transactions are charged a commission on each payment via bank, card or app. However, with digital currencies, these transaction fees can be reduced or eliminated because exchanges do not have to go through these channels. It could also streamline the process by which the U.S. government pays benefits.

It also has the potential to simplify and speed up international transfers, which are currently slow and costly. Forex brokerage expert Marc Chandler said using digital currencies could reduce the two-day verification time required for an operation to just one hour.

What are the possible risks?

Of course, there may also be some risks, including system failure or network attacks. Since the government (theoretically) has access to every transaction, there will also be some issues around privacy.

In addition, this may have an impact on the banking system. Currently, banks are using customers' deposits. This will change once a digital dollar becomes available, as banks will have less currency to work with.

White House economic adviser Brian Deese said on CNBC that the study of the move would also examine "unintended consequences."

While many countries, including China, India and the Eurozone, are already working on their digital currencies, Professor Eswar Prasad of Conyx University believes that the dominance of the dollar gives the United States an opportunity to learn from other currencies.

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