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America's lawmakers and Federal Reserve officials "are so concerned about Facebook's plans to launch a new digital currency," reports Politico's financial services reporter, "that they're contemplating a novel response -- having the central bank create a competitor." Momentum is building for an idea that was once considered outlandish -- a U.S. government-run virtual currency that would replace physical cash, a dramatic move that could discourage major companies like Facebook from creating their own digital coins. Facebook's proposed currency, Libra, has forced the Fed to consider the issue because of a fear that private companies could establish their own currencies and take control over the global payments system. Some Fed officials share the concern about a new balkanized currency system outside government control that Facebook has threatened to unleash. "Libra bust this way out into the open," said Karen Petrou, a managing partner at Federal Financial Analytics who advises executives on coming policy shifts.

But it's not just Facebook. The matter is also taking on urgency as other countries consider creating their own digital currencies -- another potential challenge to the primacy of the U.S. dollar. The head of the Bank of England has floated the idea that central banks could create a network of digital currencies to replace the dollar as the world's reserve currency... The Bank for International Settlements, which represents the world's central banks, said early this year that most were conducting research into central bank digital currencies and many were progressing from conceptual work into experimentation and proofs-of-concept...

The details of a possible [U.S.] Fed-developed digital currency are still vague. But advocates and experts say such an instrument could give consumers a new way to make payments without having to rely on banks and without incurring fees when they transfer money. The digital currency would likely take some inspiration from the technology that underpins other cryptocurrencies such as Bitcoin. The discussions are informal at this point. Members of Congress from both sides of the aisle have written to the central bank asking officials to consider how they might approach a digital currency, and some Fed officials have begun to acknowledge the government might someday play a role. "It is inevitable," Federal Reserve Bank of Philadelphia President Patrick Harker said at a recent conference, according to Reuters. "I think it is better for us to start getting our hands around it."
The article argues that America's central bankers "worry that another major company could enter the space. If the Fed doesn't establish a digital currency, who will...?

"The growing pressure on the Fed is evidence of how rapid developments in technology are beginning to shake the foundations of the financial system, raising questions about whether policymakers are prepared."

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