Investor interest in bitcoin and other cryptocurrencies have not gone unnoticed by governments, including the United States.

Jerome Powell said the Federal Reserve is seriously considering creating a digital dollar that would exist alongside the traditional dollar. The European Central Bank chief wants to do the same for the euro. In fact, a recent survey found 86 percent of central banks are exploring the idea, according to a report by Fareed Zakaria on The Global Public Square.

“To understand the idea, consider cryptocurrencies like bitcoin,” Zakaria said. “These are decentralized systems created by private actors that theoretically work like cash. You instantly purchase a Tesla by sending them bitcoin. No credit cards or bank checks are needed. But this only works because Tesla has agreed to accept bitcoin as payment. It isn't legal tender. No one has to accept it. Central Bank digital currencies, on the other hand, would be legal tender.”

As such, he said, imagine the government wants to send everyone a stimulus payment. Rather than taking weeks to transfer money to bank accounts, print checks and mail debit cards, the government can simply send the money directly to a digital wallet on your phone, which could then be used to buy groceries or pay rent or any number of transactions.

This is already a reality in some parts of China. In pilot projects across several cities, the Chinese government has sent small amounts of digital money to people via lottery. As of November, consumers had made 4 million transactions using the e-yuan, totaling $300 million worth of spending.

“Countries are approaching this idea cautiously because they worry about damaging their financial systems by undermining institutions like private banks,” Zakaria reported. “But some governments also see an opportunity to disrupt the global financial system to their benefit. For example, a digital euro could help the E.U. chip away at the dollar’s dominance in international trade. It’s a long-held goal that has only become more pressing as the United States government has weaponized the dollar.”

When the Trump administration imposed sanctions on Iranian individuals and businesses, so-called secondary sanctions meant that European companies had to stop doing business with Iran or else they could be cut off from the U.S. financial system, Zakaria explained. European nations tried to set up a mechanism to skirt the sanctions but were unsuccessful. Digital currencies could be the solution.

China and Russia would also like to challenge the U.S. dollar’s supremacy as the global reserve currency, but they may have other, darker motivations, according to Zakaria.

The Financial Times points out that libertarians have championed cryptocurrencies because they keep the government out of commerce. State-backed digital currencies can empower governments by providing detailed information about people’s business dealings, who is transacting with whom, what they’re buying and selling, where they’re located — information governments could use to set economic policies or target money laundering.

In the hands of the Chinese Communist Party or the Kremlin, it could be used to crack down on ethnic minorities or political dissidents, Zakaria warned.

In the end, digital currencies may end up following the same path as the internet. In its early days, people thought of the web as a decentralized, free and open global system that would empower individuals — and it has fulfilled that promise in many ways. But, in other ways, it has become yet another tool of authoritarian government control, Zakaria said.

One more sobering and unintended consequence of the great information revolution.

Mike Consol (m.consol@irei.com) is editor of Real Assets Adviser. Follow him on Twitter @mikeconsol to read his latest postings.