This year, bitcoin has mesmerised many investors. Never mind the fact that it has doubled in price, after tripling in 2020; nor that figures such as Elon Musk have backed it — this week he tweeted that Tesla cars will be sold in bitcoin. What is even more remarkable is that some establishment players such as Citigroup now think bitcoin “may be optimally positioned to become the preferred global currency for trade” in the future, a role currently occupied by the dollar.
But while this is headline-grabbing, there is a second crypto tale unfolding that most people have noticed less: central bank experiments. This week the Bank for International Settlements held an “innovation” conference, at which Jay Powell, Federal Reserve chair, explained that Fed officials are working with the Massachusetts Institute of Technology to explore the feasibility of a dollar-based central bank digital currency.
Details are sparse. But a CBDC essentially enables consumers to use computerised code as “money”, thus echoing some of the features of bitcoin, or the type of crypto coin being developed by Facebook. But this computer code would be created and controlled by the Fed — not Facebook or faceless bitcoin “miners”. Powell stressed this digital dollar would not emerge quickly, if at all, saying “there is no need to rush”. But the symbolism is striking, since it reflects a subtle but notable shift in attitude among regulators.