US Senate Banking Committee discusses blockchain-based digital dollar

The US Senate Banking Committee has engaged in a second hearing on the possibility of a blockchain-based US dollar

The US Senate Banking Committee held a second hearing on how a blockchain-based US dollar could be created and regulated. The hearing, which took place yesterday, covered a range of issues that would have to be addressed if a digital US dollar were created.

A “digital dollar” in this context refers to a blockchain-based US currency, as all major fiat currency is accessible digitally. The US Federal Reserve was able to expand its balance sheet from less than $4 trillion to over $7 trillion since the start of 2020; because they printed more US dollars  — a process that is impossible for digital assets like Bitcoin.

The Senate also discussed stablecoins during a second hearing. With all the volatility in the crypto markets, stablecoins like Tether have become extremely popular. Tether (USDT) has the third-highest market-cap for any token, after Bitcoin and Ethereum.

The digital dollar isn’t going to be like bitcoin

The type of blockchain-based currency being discussed by the Banking Committee doesn’t appear to share much with Bitcoin or other decentralized tokens.

While there are no firm guidelines for how a blockchain-based US dollar would work, it appears that it would behave like a fiat currency that is recorded on a government-controlled blockchain.

China has made progress with a digital Yuan, which is blockchain-based but will not be decentralized. The People’s Bank of China (PBoC) will have full control over the digital Yuan and can use the information from the transactions for anything it chooses.

Many people who initially adopted digital currencies like Bitcoin were attracted by its anonymity and the fact that no government was involved. Government-backed tokens may not be able to find the same support, although this remains to be seen.

Government-backed blockchain tokens would represent another way for people to use blockchain technology. For the moment, the only country that has a functioning digital currency is Venezuela.

The national digital currency of Venezuela is called the “Petro”. Very few people outside of the South American nation use the Petro. In Venezuela, other tokens, like Bitcoin, have become popular for payments, while the use of Petro is limited.

As more government-backed digital currencies enter circulation it will be easier to see what the market values in a digital token, and if central bank digital currencies are able to compete with Bitcoin.