The U.S. Congressional Subcommittee on Monetary Policy and Trade discussed major questions around digital currencies in a hearing[1] today, July 18. The hearing, entitled “The Future of Money: Digital Currency,” considered potential domestic and global implementations of cryptocurrencies.
At the hearing, the Subcommittee discussed the deployment of cryptocurrency and its underlying technology, blockchain[2], by central banks[3], arguing whether central banks should introduce a central bank digital currency (CBDC).
Addressing this point, Rodney Garratt, a professor of economics at the University of California, Santa Barbara, claimed[4] that the banks have to decide whether they want “to withdraw completely from providing a payment device for general public,” or whether they prefer to adopt one of sorts of digital alternative. Which, in turn, could be “some form of crypto.”
Alex Pollock, senior fellow at the R Street Institute, argued[5] that “to have a central bank digital currency is one of the worst financial ideas of recent times, but still it’s quite conceivable...” Pollock said that central bank digital currencies would only increase the size, role, and power of the bank, adding that the Federal Reserve adopting a CBDC would result in it become the “overwhelming credit allocator of the U.S.[6] economic and financial system.” He continued:
“I think we can we can safely predict that its credit allocation would unavoidably be highly politicized and the taxpayers would be on the hook for its credit losses. The risk would be directly in the central bank.”
Pollock explained that if fiat money[7] becomes digitized, its nature will not be changed, and will still be issued by a central bank. While
