There has been a lot of discussion about the US Dollar remaining the top reserve currency around the world. Having the dollar be the big dog in the realm of fiat brings a lot of benefits to the US and must be a leading policy objective. China wants to usurp the dollar’s status with the yuan. Part of the mission of China includes a digital yuan or eCNY that is already being tested live and in the wild.
In the US, there is a debate about a highly regulated stablecoin or a CBDC – a central bank digital currency. One is issued by the private sector, and the other is controlled by the Feds. The main sticking point is privacy and the potential for the government to pull strings if they issue a digital dollar. In the case of China, there is no question that this is part of the goal. And when it comes to the good ole USA, we all know that what one government says today may not hold tomorrow.
Today, Brian Brooks, former Comptroller of the Currency at the OCC, and Charles Calomiris, Dean of Economics at the University of Austin, have submitted an Op-Ed in WSJ.com, advocating for regulated stablecoins. Brooks and Calomiris point to the damage a demoted dollar would cause:
“A de-dollarized world would damage the US. The dollar’s reserve status reduces U.S. borrowing costs, which is crucial in an era when government borrowing and spending are at a record high and still climbing. Reserve status also insulates the U.S. government, banks, and the general public from foreign-exchange risk. All things being equal, reserve status also allows American consumers to buy foreign goods more cheaply, since foreign producers would rather have dollars than other currencies.”
The two worry that recent US policy has not improved confidence in the dollar.
What is missing is a proper regulatory framework to allow firms to issue digital dollars. While there are several stablecoin issuers doing it today, there are gaps in the process – something Congress must address. Brooks and Calomiris support the bill recently submitted by Representative Patrick McHenry, Chair of the House Financial Services Committee, which is currently working its way through the legislative process.
A digital dollar, held in digital wallets, would enable anyone anywhere to save money in the greenback. In places around the world where hyperinflation is routine, this could significantly boost the dollar’s utility and further buttresses reserve currency status. At the same time, payments and transfers can be friction-free, removing most of the costs affiliated with today’s established payment rails used by credit cards. And if regulated correctly, IE stringent privacy rights for users, future temptations to abuse a CBDC may be mitigated. It will also push the eCNY aside in its attempt at global digital domination. At least for those existing outside China.