Daleep Singh, a former Deputy National Security Advisor for International Economics in the Biden administration, has called for the creation of a digital dollar to replace cryptocurrencies.
Speaking at a Senate Banking Committee hearing on February 28, Singh argued that cryptocurrencies facilitate ransomware attacks and contribute to the evasion of US sanctions. He claimed that a digital dollar would “crowd out” the cryptocurrency ecosystem and protect the national security of the US.
US government poses threat to crypto
Singh’s comments come at a time when the US government is increasingly concerned about the use of cryptocurrencies for criminal activities. The rise of ransomware attacks, in particular, has been a major concern, with several high-profile attacks in recent months.
The US government has also been using sanctions as a tool of foreign policy, and cryptocurrencies have been used to evade these sanctions. A digital dollar would make it easier to track transactions and prevent such evasion according to the people involved.
While some cryptocurrency proponents may see Singh’s comments as an attack on their industry, it is worth noting that he is not alone in his views. The US Federal Reserve has also been exploring the idea of a digital dollar, and other countries, such as China, are already testing their own digital currencies.
It remains to be seen whether a digital dollar will be created, but it is clear that the US government is taking the potential threat of cryptocurrencies seriously and is considering ways to address it.
The mystery of “crowding out” crypto
Daleep Singh’s call for a Central Bank Digital Currency (CBDC) to “crowd out” the cryptocurrency ecosystem has raised eyebrows among economists. While Singh frames this as a desirable outcome that would protect national interests, the phrase “crowding out” is typically used in economics to refer to how government investments can displace private investment, potentially leading to slower economic growth and job creation.
The concept of “crowding out” has long been a subject of debate among economists, with some arguing that government investment can crowd out private investment, while others suggest that it can have a positive effect by spurring economic growth.
In the case of a CBDC, there are arguments on both sides. While a CBDC could provide greater security and transparency in financial transactions, it could also displace private cryptocurrencies and limit innovation in the space.
A CBDC could provide greater transparency and security in financial transactions, potentially reducing the use of cryptocurrencies for criminal activities. However, it remains to be seen whether a CBDC would truly “crowd out” the cryptocurrency ecosystem or simply coexist alongside it, as has been the case with other digital currencies.
While China has already implemented its own Central Bank Digital Currency (CBDC), the United States is still exploring the potential benefits and risks associated with CBDCs.
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