By Arun Kumar Shrivastav
The use of digital currencies has been a topic of discussion for some time now, with both supporters and opponents presenting their views on the matter. Recently, US Senator Ted Cruz, a member of the Republican Party representing the state of Texas, introduced a bill that called for the Federal Reserve (Fed) to work towards preventing the development of a Central Bank Digital Currency (CBDC).
The purpose of the legislation, he stressed, is to ensure that any regulations regarding digital currency in the US should prioritize protecting users’ financial privacy, maintaining and boosting the dominance of the US dollar, and fostering innovation.
Proponents of CBDCs argue that the digital dollar could offer a wide range of benefits to businesses, consumers, and governments. For example, a digital currency could cut down the cost of transactions and make cross-border payments faster and more straightforward. CBDCs could also provide governments with a more efficient way to distribute stimulus payments and other financial assistance.
However, opponents of CBDCs are concerned about the potential risks to individual liberty and financial privacy. Some have warned that a digital currency could be used to monitor individuals’ financial transactions and track their movements. Others worry that a CBDC could undermine the role of traditional banks and destabilize the financial system.
According to Cruz, if CBDCs are authorized to transgress these fundamental norms, the Federal Reserve may transform into a financial company, obtain sensitive customer data, and permanently track order books.
The proposed bill is expected to face opposition from Democrats, who have been pushing for a CBDC for some time. According to reports, the Biden administration has been exploring creating a digital dollar, providing benefits such as faster and cheaper transactions and greater financial inclusion.
As the debate over CBDCs continues, it remains to be seen how much support Cruz’s bill will receive from other lawmakers. However, the introduction of this legislation highlights the growing concern among some politicians about the potential risks and benefits of a digital currency. With the Federal Reserve already exploring the possibility of a CBDC, it is clear that this issue will remain a hot topic in the months and years ahead.
This comes at a period when the Nigerian government is increasing its adoption of CBDCs as national fiat reserves face severe shortages. The acute cash shortage in Nigeria was due to the central bank’s decision to replace older bank notes with bigger denominations amid rising inflation. While developing nations were among the first to acknowledge the importance of a CBDC in revamping fiat capabilities, the idea is yet to materialize.
However, the lack of physical cash forced Nigerians to use the eNaira. In a country where cash accounts for about 90% of transactions, the value of eNaira transactions increased 63% to 22 billion nairas ($47.7 million), revealed a Bloomberg report.
CBDCs could be a game-changer for Nigeria’s economy. The eNaira has the potential to increase financial inclusion, reduce transaction costs, and make cross-border payments more accessible. It could also provide the government with a more efficient way to distribute stimulus payments and other financial assistance.
The opponents of CBDCs in Nigeria are concerned about the potential risks to financial privacy and individual liberty. The eNaira could be used to monitor individuals’ financial transactions and track their movements. Others worry that a CBDC could destabilize the financial system and cause economic turmoil.
The debate over CBDCs is likely to continue in the months and years ahead. It remains to be seen how much support Senator Cruz’s bill will receive from other lawmakers.
Amid the banking sector crisis that saw three mainstream US banks folding up operations in the past fortnight and the US government printing $150 billion and bailing out banks, the debate if private digital currencies are a better option for the people is once again taking the centrestage. The banking sector crisis is global and banks across the globe are affected by it.
Recently, the Chinese government has pumped in $90 billion to help out its banks facing a liquidity crisis. But central banks across the world are still trying to keep private digital coins at bay and promote their own digital coins – Central Bank Digital Coins (CBDC). As regards India, RBI has already studied the issue in details and opted for the introduction of the digital currency. All the norms and regulations are being given final touch. Enough caution is being taken. (IPA Service)