We've previously discussed cryptocurrency stablecoins and the role they may eventually play in financial society. But what about a digital dollar? Stablecoins are also digital dollars, right? USDC is the US dollar coin, after all.
USDC is not a digital dollar. It is a cryptocurrency and isn't controlled by any government. It is similar to Bitcoin but pegged to the US dollar and far less volatile. Hence the term "stable." A digital dollar or central bank digital currency (CBDC) is the US dollar in digital form. It is issued by the Federal Reserve. For other countries, their digital currency is issued by their central banks as well.
The US digital dollar does not yet exist. However, all expectations are that there's a near 100% chance that the FED will create a digital dollar. The FED outlines this path in a soon-to-be-released paper this summer.
The CBDC isn't a stand alone version of the dollar and it definitely isn't a cryptocurrency. It is the dollar but in digital form. It is fully issued and controlled by the FED just like paper currency. It is also legal tender, which cryptocurrencies are not.
Some countries have been running trials of digital currencies. These include China and the Bahamas, with their digital currencies, called the "Digital Yuan" and "Sand Dollar," respectively. Since 2014, about 60 countries have been exploring the implementation of a digital currency. The FED has been exploring a CBDC since 2018.
A digital currency can better reach the underbanked than paper money. As well, the money supply can be better controlled and tracked. Government assistance or transfer payments can be distributed to a wider underserved group in the country.
On the flip side, a digital currency means less anonymity and privacy since it can be tracked. Cash offers near complete privacy. Security of everyone using a digital currency will need to be worked out as well.