Crypto Has Arrived – Why the US Needs to Embrace It

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Given the recent release of the Federal Reserve’s white paper analyzing the pros and cons of a US central bank digital currency (CBDC), now seems like the time to take a fresh look at this issue. Since several countries around the world have already launched or are in the process of launching CBDCs, the question must be asked; why does the United States seem to be behind in this area? The technology arguments have been touched on – blockchain and the crypto-assets on top of it offer quantifiable cost savings and benefits – so why hesitate?

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There are a number of reasons why the United States might want to take its time with issuing a CBDC, but one is of paramount importance; the role of the dollar as the world’s reserve currency. Serving as the world’s reserve currency provides the United States, putting aside hyperbole or other machinations, provides the United States with an unprecedented economic advantage over all other nations. Such a benefit, however, is not guaranteed or assured in the future, and it is imperative that policy makers understand the pros and cons of a CBDC project, as well as the implications this will have for the economy at the global level. wider.

Let’s take a look and dive into some of the factors that should be considered by the Federal Reserve and any other policy maker looking to integrate crypto and blockchain into the payment system.

Convenience is key. For a CBDC to be adopted by the general public, it will have to be able to be used on a daily basis and will have to interact with other technology and payment platforms. For crypto-assets to truly evolve into crypto-currencies, and to be used on a daily basis for purchases and transactions of all kinds, they will have to be practical to use.

In other words, it should be as easy and simple to use cryptocurrency for transactions as it is to use (common) fiat currencies. If the process and steps to use a cryptocurrency, whether a CBDC or not, are too complicated, the project will not succeed. CBDCs should be, and will be, easy and convenient to use.

Safety is essential. Based on this first point, it will be imperative that the security around these crypto-asset transactions be secure. The number of hacks, breaches, and other unethical activities that have occurred on exchanges and cryptocurrency platforms are countless in nature and have caused billions in losses to investors. Such incidents could make headlines and there is a reason for that; investors should take note.

If a CBDC is to be used as a medium of exchange, it must be a secure medium of exchange and must be trusted. In other words, individuals and institutions using this cryptoasset are going to have to trust it, and that involves two distinct components. First, any CBDC will need to have the stability associated with current fiat currencies. Second, these monetary tools must be able to convince consumers that in the event of a hack or breach, there will be a safety net or method by which consumers will be compensated.

Stability is key. Building on the previous points centered on security and convenience, it is absolutely imperative that any proposed CBDC actually performs as advertised with respect to its stability. Users, whether individual or intuitive in nature, will not be interested in using a cryptocurrency that has excessive volatility. This is why, putting all other arguments aside, bitcoin and other more volatile cryptocurrencies have yet to be used for transition purposes.

A strong, and some would say, main advantage associated with CBDCs is the price stability and low volatility associated with these instruments. Similar to how nations should carefully manage the value of fiat currencies, nations will be expected to manage the value and stability of a CBDC. Consumers and users, in all walks of life, will expect and demand that any tool developed and offered as a replacement or augmentation to existing currencies will have similar stability and usability to existing options.

The development and launch of a CBDC around the world has led to vigorous conversations with strong opinions on both sides of the issue, but the reality is that these assets and instruments have fully arrived. CBDCs are here, are already being traded and used in the wider market, and as this iteration of crypto-assets continues to develop and mature, it is imperative that all participants – individuals, institutions, investors and issuers be knowledgeable about how these instruments should work and function. Crypto-assets are part of the mainstream, will continue to be part of the broader economic conversation, and the market would be well served to pay attention to this rapidly changing and rapidly growing asset class.

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