- The long-awaited report on central bank digital currencies was released by the US Federal Reserve.
- The Fed described the benefits and drawbacks of a central bank digital currency, also known as a CBDC, in a 40-page paper due last summer, and invited public feedback.
- In order to pursue a CBDC, the Fed indicated it needed wide public and government support, and it requested stakeholders to provide feedback on a list of 22 issues.
The Federal Reserve issued its long-awaited assessment on a digital currency on Thursday, outlining the benefits and drawbacks of the hotly discussed topic and inviting public feedback.
The Fed described the benefits and drawbacks of a central bank digital currency, also known as a CBDC, in a 40-page paper due last summer, and invited public feedback. In response to the question of whether the Fed would issue a digital currency, the central bank stated that the report was intended to spark discussion rather than take a position.
“The first step in a public discussion between the Federal Reserve and stakeholders about central bank digital currencies” according to the press release.
It examines all of the advantages, such as speeding up the electronic payments system at a time when most financial activities are already largely digital around the world. Financial stability threats and privacy protection while guarding against fraud and other illegal issues are some of the negative issues discussed in the research.
“The paper is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a U.S. CBDC,” the report states.
In order to pursue a CBDC, the Fed indicated it needed wide public and government support, and it requested stakeholders to provide feedback on a list of 22 issues.
It further stated that Congress must take action before the Fed establishes a CBDC, preferably through “a specific authorizing law.”
According to the paper, a CBDC may substantially alter the structure of the United States financial system, affecting the roles and responsibilities of the private sector and the central bank.
In public comments on the CBDC, Fed Chairman Jerome Powell has been generally evasive. Fed Governor Lael Brainard, who has been nominated to be vice chair of the governing Federal Open Market Committee, is the most vocal supporter of the proposal.
“The introduction of a CBDC would represent a highly significant innovation in American money,” the Fed stated, adding that it would come with a number of risks and benefits. A CBDC provides a handy and secure electronic form of central bank money, as well as cheaper and faster payments, even internationally, according to the paper.
One major distinction between the Fed’s currency and other digital transactions is that existing digital money is a commercial bank liability, whereas the CBDC would be a Federal Reserve liability. That would entail, among other things, that the Fed would not pay interest on money held in its vaults, though some depositors may opt to do so because it is risk-free.
Outside of generic comments on CBDCs, Fed Chairman Jerome Powell hasn’t taken a position on granting them.
The paper does declare that, “it is not designed to achieve a specific policy conclusion and takes no opinion on the eventual acceptability of” the digital currency.”
Fed Governor Lael Brainard, who has been nominated for the Fed’s No. 2 position, has spoken out in support of them. She claimed they could speed up the payment of benefits to Americans, similar to those given out during the COVID-19 outbreak, when many people needed help.
According to a tracker maintained by the Atlantic Council, 87 nations are currently investigating CBDCs, with 14 of them, including large economies such as China and South Korea, already in the pilot stage. They’ve already been properly launched by Nine.