In a significant disclosure, Federal Reserve Bank of Dallas President Rob Kaplan said the Fed is “actively looking at and debating” issuance of a US digital currency.

The Fed could be mulling a US digital currency on fears that an upstart cryptocurrency could gain global adoption. The new currency may dislodge the US dollar from its perch as a global reserve currency.

Kaplan was speaking at a business event in Austin, Texas.

A US digital currency to avoid a $200 billion interest bill

The US currently has a national debt of $23 trillion funded largely by foreign central banks, commercial banks, and investors. They typically invest in US treasury bonds and other dollar-denominated assets.

These investors consider the US dollar as a safe and liquid currency. That’s because of its worldwide application in trade and commerce, and the backing of the US government.

However, if a new digital currency dethrones the US dollar, demand for US assets could decline. This would dramatically push up the interest rate that the US pays on its debt.

“It just reinforces, the dollar may not be the world’s reserve currency forever, and if that changes, and you tack on 100 basis points to $20 trillion, with relatively short average life, that’s a lot of money,” said Kaplan.

“It’s $200 billion a year and all of a sudden we’ve got a tremendous problem here, so it’s something we’re watching very closely.”

The statement is the clearest indication yet that a US digital currency might soon see the light of day.

It echoes an oped in the Wall Street Journal by former CFTC officials J. Christopher Giancarlo and  Daniel Gorfine. They recommended that Washington should edge out rivals with a regulated platform for trading greenbacks via blockchain.

Kaplan on other dollar alternatives

Kaplan said that US actions such as sanctions and tariffs were driving global efforts to find a dollar alternative:

“People around the world are working real hard to try to find alternatives to dollars and dollar infrastructure because the more they’re invested in that, the more susceptible they are to sanctions, tariffs and what’s going on right now.”

In a recent speech at Jackson Hole, Bank of England governor Mark Carney proposed the creation of a “Synthetic Hegemonic Currency” (SHC). Moreover, Carney suggested this currency could replace the US dollar as the global reserve currency.

Kaplan even commented on Facebook’s Libra.

He hinted at the regulatory troubles of the proposed Libra stablecoin and the defections from the Libra Association: “I noticed Libra seems to be receding at the moment,” he said. But “somebody’s going to figure out how to do this.”

Perhaps the Fed may do exactly that by rolling out a US digital currency.

[Related Story: Federal Reserve’s Harker: The Fed Will Have a Digital Currency (One Day)   ]