Last week saw an unlikely first move in the initial narrative battle over a possible US central bank digital currency: Congressman Tom Emmer introduced an initiative to legally restrict the Federal Reserve’s ability to issue retail CBDC and assume the role of a retail bank. This could have a big impact, as we have yet to see such a strong expression of a contrary position. In fact, it’s not even clear whether other US lawmakers have strong views on the matter, aside from perhaps condemning privately issued stablecoins as a digital alternative to the dollar. By framing a potential Fed CBDC as a privacy threat in the first place, Emmer could tip the conversation in the direction favorable to less centralized digital money designs.
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US Representative vs. US CBDC
The tension between decentralized digital money and state-issued CBDCs is at the heart of the current global shift to digital payment channels. Last week saw the first case in which a serving US congressman formally took a position on against of the possible creation of a CBDC by the Federal Reserve.
The digital fiat sovereign will undoubtedly be more comfortable than its analog predecessor, but the privacy costs of that comfort could be enormous. If all money is CBDC, the government’s financial surveillance capabilities will be virtually limitless, denying people the anonymity that cash transactions once allowed. Representative Emmer cited these privacy concerns as justification for introducing the bill that would prohibit the Federal Reserve from issuing a CBDC directly to consumers and acting as a retail bank.
Although it may be a long time before Emmer’s initiative reaches the full House of Representatives, the mere articulation of such a position by a member of Congress can have a significant impact on the course of the political conversation around an issue. CBDC potential. This is especially true in light of the declared willingness of some top Federal Reserve officials to defer to Congress on this issue.
Another prohibition scare, another El Salvador
In other parts of the world, the signals that various regulators have been sending over the past week range from a possible ban on cryptocurrency transactions in Pakistan to consideration of replicating El Salvador’s Bitcoin measure as legal tender in Tonga. Pakistan’s push toward a blanket ban follows a familiar scenario in which it is the nation’s central bank that actively commits to banning cryptocurrency transactions and penalizing exchanges. The task of determining the legal status of cryptocurrencies fell to the Sindh Provincial High Court, although the judges refrained from making the final decision and referred the matter to specialized government ministries.
On the opposite side of the regulatory spectrum, the island nation of Tonga could soon embark on the path of adopting Bitcoin. An announcement by Lord Fusitu’a, Tonga’s former member of parliament and chair of several regional inter-parliamentary groups, suggested that the country could make Bitcoin legal tender as soon as the end of 2022. Given Tongans’ heavy reliance on of remittances, it seems logical to replicate the measure of El Salvador in an almost identical way.
The IMF foresees the disappearance of the hedging role of cryptocurrencies
Among the many risk factors that analysts have attributed to digital assets over the years, the financial stability risk stemming from cryptocurrencies’ increasing correlation with stock markets is a novel topic. However, this is what a group of researchers from the International Monetary Fund concluded when examining the dynamics of the correlation between bitcoin and the S&P 500 index. The authors argued that the growing interconnectedness between the two asset classes nullifies the hedging function of cryptocurrencies, since they do not serve to diversify the risks of investors. The IMF analysts’ conclusions boil down to the reasonable idea that there should be a global and coordinated approach to cryptocurrency regulation.