Digital CurrencyThe money used in a particular country at a particular time, like dollar, yen, euro, etc., consisting of banknotes and coins, that does not require endorsement as a medium of exchange. More as a Complement to CashMoney in physical form such as banknotes and coins. More

“Given the dollar’s important role, it is essential that the Federal Reserve remain on the frontier of research and policy development regarding central bank digital currencies,” said Federal Reserve Board Governor Lael Brainard. “Like other central banks, we are continuing to assess the opportunities and challenges of, as well as the use cases for, a digital currency, as a complement to cash and other payments options.”

Technological innovations inspire new ways to think about moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More. Consistent with its role in promoting a safeSecure container for storing money and valuables, with high resistance to breaking and entering. More, accessible, and efficient U.S. paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More system, the Federal Reserve is engaged in ongoing research and experimentation with the latest payment technologies. The Federal Reserve Board’s Technology Lab (TechLab) is expanding experimentation with technologies relevant to digital currencies and other payment innovations. The TechLab conducts hands-on research to further the Federal Reserve’s understanding of payment technologies and support development of policy views. The TechLab is a multidisciplinary team composed of Board and Federal Reserve BankSee Central bank. More staff with expertise in payments, economics, law, information technology, and computer science.

In addition, the Federal Reserve Bank of Boston is collaborating with researchers at the Massachusetts Institute of Technology on a multiyear effort to build a hypothetical digital currency oriented for central bank use. This research project is intended to support the Board’s broader efforts in assessing the safety and efficiency of central bank digital currency systems. The project focuses solely on developing an understanding of the capacities and limitations of the relevant technologies, rather than serving as a prototype for a Federal Reserve issued digital currency or addressing the wide-ranging policy issues associated with its potential issuance.

A Sovereign Currency as the Anchor of the Nation’s Payment Systems

“The introduction of BitcoinBitcoin is commonly said to be a cryptocurrency, a digital means of exchange developed by a set of anonymous authors under the pseudonym of Satoshi Nakamoto, which began operating in 2009 as a community project (Wikipedia type), without the relationship or dependency of any government, state, company or body, and whose value (formed by a complicated system of mathematical algorithms and cryptography) is not supported by any central bank or authority. Bitcoins are essentially accounting entries i... More and the subsequent emergence of stablecoins with potentially global reach, such as Facebook’s Libra, have raised fundamental questions about legal and regulatory safeguards, financial stability, and the role of currency in society. This prospect has intensified calls for CBDCs to maintain the sovereign currency as the anchor of the nation’s payment systems. Moreover, China has moved ahead rapidly on its version of a CBDC.” said Governor Brainard in a speech delivered by webcast at the Federal Reserve Board. “Lessons from this collaboration will be published, and any codebase that is developed through this effort will be offered as open-source software for anyone to use for experimentation.”

No Decision on the Legality and Feasibility

According to Bloomberg, Brainard cautioned that the Fed “has not made a decision whether to undertake” a significant policy process that explores the legality and feasibility of digital currency with the government and stakeholders.

According to a survey published in January by the Bank for International Settlements (BIS), 80% of central banks are engaging in some kind of work in relation to CBDC. However, only 40% have evolved from research to experiments or proofs-of-concept and less than 10% are running pilots, all of which come from emerging markets. These numbers have actually declined between 2018 and 2019, as illustrated by the charts below.

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