U.S. President Joe Biden ordered the Treasury Department to study the creation of a digital dollar, a move with the potential to change the way money is moved and used around the world. But, before his order effectively results in a virtual dollar, there will be numerous important impacts and risks to consider. 

The digital dollar would still be a dollar issued by the Federal Reserve, like all U.S. bills and coins in use now, but in a digital form accessible to everyone, not just financial institutions. Unlike money deposited in a bank account or spent through apps like Venmo and Apple Pay, it would be recorded in the Fed’s accounts, not at a bank.

At the same time, the digital dollar would be worth the same as its paper counterpart, a divergence from cryptocurrencies that currently have highly volatile quotes. However, some key questions still remain unanswered, such as whether a digital dollar would be based on blockchain technology like Bitcoin or whether it would be linked to some sort of payment card.

If the US government decides to go ahead, it could be a long time before a digital dollar is possible. Authorities will have to explore, for example, what technology to use.

Another benefit of the digital dollar is that it would reduce or even eliminate transaction costs, as exchanges would no longer go only through banks, bank cards or apps that charge fees on each payment. Besides, proponents of the idea say it would help the unbanked, about 5% of U.S. households, and could facilitate the payment of social benefits.

The digital dollar would eliminate costs and facilitate transactions, but for some it would also be a government overreach on transaction privacy.

However, there are also risks, such as a system failure or cyber attack, as well as privacy concerns, as the government could theoretically have access to all transactions.

Global finance would also be affected. International transfers, often slow and expensive to make, could be made much easier. A transaction that currently takes two days to validate could be done in an hour. 

There’s also a downside: if the use of the digital dollar becomes widespread, it could ruin the monetary system of small countries whose people would stop using the local currency.

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