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Tyler Cowen

When Is a Dollar Not a Dollar?

If the Federal Reserve issues digital currency, it will forever change the U.S. financial industry.

Coming soon to a central bank near you?

Coming soon to a central bank near you?

Photographer: Chris McGrath/Getty Images Europe

A digital currency issued by the Federal Reserve would revolutionize the U.S. financial industry. Yet while economic and financial digitization is crucial, as Fed Chairman Jerome Powell says, it cannot also be universal. The result is that major economies are going to end up with at least two different kinds of money.

The most common worry is that a central bank digital currency, or CBDC, would lead to disintermediation, with individuals or wholesalers putting their money into a CBDC system rather than commercial banks. The result would be fewer loans and less private-sector economic activity.