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At the Federal Reserve conference on the digital dollar, panelists said that a proper crypto regulatory framework should come first.
The prospect of a Federal Reserve digital dollar did not particularly sway panelists at the US central bank’s designated conference. The conference, which was the first of its kind on the international role of the dollar, saw some interesting developments. Firstly, a panel focused on digital assets discovered that the lack of a regulatory framework hindered institutional crypto investment. In addition, there was an underwhelming reaction to a Fed-issued central bank digital currency (CBDC).
The Fed’s summary at the dollar inaugural conference read:
“Panelists generally agreed that technology by itself would not lead to drastic changes in the global currency ecosystem, as other factors such as the rule of law, stability, network effects, and the depth of markets are crucial for the advantages held by dominant currencies.”
In addition, the Fed’s findings stated that:
“Panelists did not express material threats to the international roles of the dollar arising from digital assets in the short run, and suggested that digital assets could actually reinforce these roles over the medium run if new sets of services structured around these assets are linked to the dollar.”
Other Factors at Play Surrounding Potential Federal Reserve Digital Dollar
The Federal Reserve’s summary also downplayed the risks posed to the dollar by foreign currencies and digital assets. China has been pushing its renminbi to international relevance, causing concern among some US policymakers. This is because the United States currently leverages the dollar’s role as the global reserve asset.
Towards the end of June, Congressional Democrats deliberated on the nuances of a digital dollar, with a majority favoring it. However, there seemed to be a deadlock on whether CBDCs should be government or private-issued. Fed Chair Jerome Powell previously stated that “one question around CBDCs is: Do we want a private stablecoin to wind up being the digital dollar? I think the answer is no. If we’re going to have a digital dollar, it should be government-guaranteed money, not private money.”
As far as CBDCs go, the digital renminbi (RMB) still currently remains the largest-scale centralized digital currency anywhere in the world.
Fed Interest Rate Hikes
The Federal Reserve continues to raise interest rates as it tries to reign in rising inflation. The US apex bank doubled down on its commitment late last month to keep hiking interest rates to contain inflation. The last hike in mid-June saw an increase of 75 basis points which sent stocks and major indexes higher. The increase is the biggest Fed hike in twenty-eight years.
However, the increasing intensity of such hikes has sparked fears of a looming recession. Many are beginning to question the Fed’s strategy and believe it to be counter-productive to the economy it is trying to save. This is because excessive hikes could drastically contract the economy and constrict economic activities. However, Powell opines that the US economy is robust enough to withstand such fiscal impacts across the board.