Not long ago, the US Federal Reserve launched the new FedNow payment system. A system that allows instant and free payments, making a digital dollar seem superfluous. Now China’s digital yuan seems to be pushing US politics in the other direction.
What is going on?
During a hearing before the US House Committee on Financial Services, five speakers voted in favor of developing a digital dollar. According to these speakers, the development of a US digital currency is necessary to stay ahead of China. After all, they are already very far with testing their digital yuan.
Chairwoman @RepMaxineWaters‘ opening statement at today’s Subcommittee hearing on the growth of alternative payments systems | : pic.twitter.com/NUveQ5zcVE
— US House Committee on Financial Services (@FSCDems) September 20, 2022
We are of course talking about the term Central Bank Digital Currency (CBDC), which you have undoubtedly seen. A CBDC is simply a digital version of a government currency. The advantage for governments and especially central banks is that they can control economies even more.
For example, in the case of a CBDC, it is possible to give people individual interest rates. In this way you can stimulate the consumption of certain people and, for example, saving behavior of others. All five speakers at the event concluded that there is a “unanimous need” for a digital US dollar.
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What does this mean for bitcoin?
In principle, this means nothing for bitcoin (BTC), since a digital dollar does not suddenly take over the properties of bitcoin. Of course, bitcoin is digital money and this would also become a fully digital currency, making the comparison quickly. It is also questionable whether this discussion would be raging now if Satoshi Nakamoto had never developed Bitcoin.
As mentioned, the development of a CBDC, from any country, is in principle irrelevant for bitcoin. By definition, a CBDC is not going to take over the absolute scarcity of 21 million units of bitcoin. Bitcoin as a means of savings remains a unique form of money.
The only thing the development of a CBDC can do is delay the adoption of bitcoin as a means of payment. If it will soon be practically free to transact anywhere in the world with a digital dollar, paying with bitcoin would immediately make it a lot less interesting.