Digital currencies could 'reduce reliance on the U.S. dollar' says new Fed paper


Recent thinking at the Federal Reserve has positioned digital currencies as a possible challenge to the dollar's dominance. 

In a paper published on October 6 and entitled "The International Role of the U.S. Dollar," leaders of the Fed's international finance department did not predict any dislodging of the U.S. dollar from its privileged position in the "foreseeable future."

In the longer term, however, they saw a trio of potential challengers: The European Union, an ascendant China and digital currency.

Regarding digital currency, the Fed staffers wrote: "A shifting payments landscape could also pose a challenge to the U.S. dollar's dominance. For example, the rapid growth of digital currencies, both private sector and official, could reduce reliance on the U.S. dollar."

The Federal Reserve has seen increased political pressure to account for its work on crypto, particularly a central bank digital currency. The Fed itself has been hesitant to commit one way or the other to the issuance of a digital dollar, which current chair Jerome Powell maintains would require congressional approval anyway.

International competitors like China have, meanwhile, pushed ahead with digitized currencies, though the digital yuan is a far cry from crypto. 

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May 5, 2022, 3:17PM UTC