How Will A Digital Dollar Possibly Affect the Cryptocurrency Market?
As previously reported by Forbes, part of the Democrat House Speaker, Nancy Pelosi unveiled a draft of a $2.5 trillion spending bill. The bill spans over 1000 pages and goes into depth regarding relief for homeowners, renters. In one part of the bill however a digital dollar is discussed. The digital dollar will seemingly operate in a manner somewhat similar to a cryptocurrency.
"a digital wallet or account, maintained by a Federal [R]eserve bank on behalf of any person, that represents holdings in an electronic device or service that is used to store digital dollars that may be tied to a digital or physical identity."
It is unknown if the digital dollar will have a block explorer and if it will launch their own blockchain or be built on top of an existing cryptocurrency.
Digital Dollar vs Libra
The launch of a digital dollar could seemingly make other cryptocurrency projects obsolete as some try to represent the dollar. This includes Facebook's Libra, which shifted from a "low volatility" currency to a stablecoin of sorts that will represent the dollar. Ironically, Facebook made the changes to Libra following opposition by government representatives.
The launch or even the announcement of a launch of an official digital dollar would deeply affect Facebook's plans for Libra. It could potentially be the final nail in the coffin for a deeply unpopular and struggling Libra.
Stablecoins vs the Digital Dollar
Some of the most popular and traded cryptocurrencies are Tether and rival stablecoins. The digital dollar could be in direct competition with these stablecoins and might be preferred by traders. The digital dollar would hypothetically be more reputable as it was issued directly by the U.S. Government. Additionally, the price would be set at $1 and would not fluctuate between $0.99 to $1.01, which might be more appealing to traders.
Tether and other stablecoins may have a few perks however. It can be tracked in block explorers and is not issued by the government. This essentially means that your funds cannot be seized, frozen, or burned by the government on a whim. One could also argue that Tether and similar stablecoins would be more private than their government issued rivals.
Should Pelosi's bill be approved we will likely see more details of the government's plans of a digital dollar.
Written by Jonathan Ganor
Writer & cryptocurrency aficionado