Fed not issuing digital dollars a threat to U.S.
The Federal Reserve and Treasury oppose issuing digital dollars to ordinary citizens. That’s a burden on our economy and threat to national security.
Money is whatever people will universally accept. It must be portable and reasonably scarce — something not easily created but still capable of increasing in supply with the growth of commerce.
Governments printed paper money that was accepted because they could tax their citizens’ ability to make goods and services. Cash was king, because greenbacks don’t bounce but checks do when issuers lack adequate funds at the bank.
Bank-sponsored credit cards came into use by charging transactions fees — about 1.5 to 3 percent. Those assure payment — checks can bounce but credit card payments to businesses are guaranteed by a pool taken from the 1.5 to 3 percent. The system has become increasingly digital — central and commercial banks keep electronic ledgers, and we pay bills on computers and through apps on smartphones.
Importantly, unlike transactions among ordinary businesses and consumers, bank-to-bank transactions — scored on electronic ledgers at the Fed — are low cost, fast and secure.
Vaguely citing legal, monetary policy, payment policy, financial stability, supervision and operational issues, the Fed refuses to let ordinary businesses and citizens have direct access to digital money by establishing accounts at the Fed’s regional banks. Even though those could provide virtually costless, terribly fast and absolutely secure private transactions — and make the economy run much more efficiently.
Digital dollars already in use among banks are increasingly the lingua franca of global commerce.
The U.S. accounts for only 8.8 percent of global exports but 40 percent of global trade and 88 percent of all foreign exchange transactions are denominated in dollars—for example, Mexican pesos into Japanese yen usually are done peso to dollar and then dollar to yen.
Through their global payments systems, Citibank and other banks worldwide that take dollar deposits provide the plumbing, and those make the dollar an offensive weapon in U.S. foreign policy. By denying access to U.S. banks and payment systems, Washington is smothering Iran’s economy.
In the eyes of our allies, the Trump administration overuses economic sanctions — for example, applying those to Iran when the U.S. withdrew from the nuclear treaty and on construction of Nord Stream 2 natural gas pipeline from Russia to Germany.
The Fed reacted with great alarm when Facebook announced plans last year to introduce a block chain driven digital currency backed by a basket of currencies such as the dollar, yen, pound and yuan. U.S. regulators pressured MasterCard, Visa and eBay to suspend participation.
China — unlike any other nation — can create a digital yuan that offers the speed, low cost and security of digital dollars. With its large reserve of dollars and trade surplus with the United States, Beijing could ensure its value stays constant against the dollar.
Our allies and adversaries have been looking for ways around the dollar payments system and digital yuan could be just that and supplant the supremacy of the dollar.
Then Beijing, not Washington, could be applying the sanctions and calling the tune.