Digital Dollar Risks Local Currencies In Poorer Countries: Raghuram Rajan

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Raghuram Rajan has served as the chief economist of the IMF.

According to Raghuram Rajan, former governor of the Central Bank of India, the introduction of the digital US dollar may help democratize banking in poor countries, but it also poses a risk to the local currency.

An easy-to-use electronic version of Greenback can encourage people in low-income countries to use dollars for day-to-day transactions, which is difficult nowadays thanks to the need for physical bills. According to Rajan, in countries where confidence in the lower echelons of the macro-economy is low, the local currency can be used effectively.

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“That means there is no longer financial sovereignty in that country,” Rajan, who also previously served as chief economist at the IMF, told Bloomberg TV in an interview with David Westin on Wednesday. “It has fewer tools to tackle economic growth.”

Rajan commented that the Federal Reserve is preparing to publish a paper in digital currency soon. The US Federal Reserve has not made a decision on the issue of digital dollars, but Chair Jerome Powell favors a slower approach in contrast to China, which is already testing the use of a digital yuan.

Rajan, now a professor at the University of Chicago Booth School of Business, has indicated support for the Fed’s warning. He said it was not the central bank’s place to be the main innovator on private sector actors.

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There are other reasons for the underlying condition of the dollar, including the deep financial markets of the United States and the rule of law, he said, adding that the introduction of a digital currency in front of the United States reduces the risk of reserve status for the dollar from others.

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