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Opinion The U.S. should not rush into a digital dollar

A bitcoin token on top of U.S. dollars arranged in Montreal on March 2. (Christinne Muschi/Bloomberg News)

The United States just took a big step toward the creation of a “digital dollar." President Biden issued an executive order last week saying his administration is placing the “highest urgency” on researching and developing a central bank digital currency. The actual issuance of a digital dollar is almost certainly a few years off, but this was the strongest signal yet that the United States intends to be a leader in the future of money and digital assets.

The highly anticipated executive order came as many Russians waited in long lines to withdraw U.S. dollars and other foreign currency from ATMs. That was a reminder that the U.S. dollar is still the world’s most popular and trusted currency. People turn to dollars even in countries where leaders such as Vladimir Putin are actively demonizing the United States.

That the U.S. dollar remains the global reserve currency underscores the need for a thoughtful and flawlessly executed introduction of any digital dollar. The United States does not need to be first to issue a digital currency; it needs to be the best. The careful approach the Biden administration and Federal Reserve have taken here is the right one. The fact that about 100 countries are exploring some form of a central bank digital currency, according to the International Monetary Fund, is largely irrelevant. China’s digital yuan might have a lot of users, but the reason it does not take off globally is the same reason most businesses still prefer to transact in dollars instead of yuan: The U.S. dollar comes with well-established legal protections. The demand will be there when the United States makes its digital move.

There are many compelling reasons to have a digital dollar. At the top of the list are much faster transaction times, easier access to money for many, and less risk of fraud. If executed smoothly, it would help ensure the U.S. dollar remains the world’s most favored currency. As the Fed wrote in January, adding an official U.S. government digital currency is “a means to expand safe payment options, not to reduce or replace them.”

But there are also serious concerns and practicalities that must be worked out. How will people access the digital dollar? Will there be government-run “digital wallets,” or will those digital wallets occur only in the private sector? The Fed has indicated it does not particularly want to become a consumer bank. Similarly, would a digital dollar use blockchain technology, like bitcoin and other e-currencies? That would help prevent fraud, but it would be a huge expansion of blockchain usage. Finally, how will the government use all of the new data it collects from digital dollar users, and what privacy protections will be in place? China offers a cautionary tale, as its government can track all transactions and seize digital yuan assets. Launching a digital currency will also be expensive, especially because of the need to ensure the system is not hacked.

Innovation is fundamental to the U.S. economy, but so are security and rule of law. A digital dollar is coming, but it would be foolish to rush it.

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