On Wednesday, one of the top officials of the U.S. Treasury Department said that they were evaluating the benefits of a government-sponsored digital currency. During a digital seminar on transatlantic economic relations, Deputy Finance Minister Justin Muzinich told the Atlantic Council that the government is investigating a potential digital currency from a dollar-pegged central bank (CBDC) and the Federal Reserve, the U.S. central bank.
He said that they are currently investigating CBDCs and they are viewing it as a solution that will work for both the Federal Reserve and the Treasury Department.
Evaluating CBDC in the U.S.
Muzinic noted that the Boston Federal Reserve office is already evaluating the CBDC. Citing recent comments from Governor Lael Brainard and the group’s collaboration with the MIT Digital Currency Initiative to research various technologies shows effort being made.
The Boston Fed has confirmed that they evaluate a potential CBDC, although it may take years to move forward. The Federal Reserve and the Treasury Department are part of an international working group that is also assessing digital currencies, Muzinic said.
At the same time, Muzinic said it was challenging to balance, prevent illegal activity, and respect consumer privacy. They are considering several factors, for example how many daily consumer transactions the government needs to see in the digital world.
In a pre-Q&A note, Muzinic said the U.S. and Europe should work together on regulating cryptocurrency. Cryptocurrency is an exciting subject because it impacts personal business and various activities.
Cryptocurrency can be more than just a means of payment; it can also provide some of the government’s functions usually performed, he added.
However, he said the government was concerned that cryptocurrencies could circumvent anti-money laundering (AML) regulations. There are also concerns about the monetary base and financial stability. While Muzinic did not mention scale, regulators and politicians worldwide warned of economic instability after Facebook launched a stable coin initiative in June 2019.
He said that the Treasury Department has made it clear that the obligation to comply with U.S. laws is the same. Whether the transaction is in traditional fiat currency or digital currency, existing law applies to digital assets without any uncertain provisions.
“It could change the money supply or cause financial disruptions if such decisions are made by private management associations or the majority of coin holders,” Muzinic said. “What if the outside player receives the most coins?After all, will important decisions about our economic system be made by governments that are accountable to the people? “