Like many other central banks – and other stakeholders such as the British House of Lords – the Federal Reserve has been studying the opportunity and feasibility of a digital dollarMonetary unit of the United States of America, and a number of other countries e.g. Australia, Canada and New Zealand. More. According to the Atlantic Council CBDC tracker, CBDCs have been launched in 9 countries, including the Bahamas’ sand dollar, the Nigerian e-Naira launched in October 2021, and DCash launched in 7 of the eight countries of the Eastern Caribbean Central Bank. Another 14 countries are currently running pilots, including Anguilla, China, Jamaica, Hong Kong, Lithuania, Malaysia, Saudi Arabia, Singapore, South Africa, South Korea, Sweden, Thailand, and the United Arab Emirates.

Examining the Positives and Negatives

The long-awaited discussion paper makes no policy recommendations and offers no clear signal of whether the Fed will effectively launch a form of CBDC. It states that “The Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.”

Complementing (Rather than Replacing) Current Forms of 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

The paperSee Banknote paper. More does summarise some of the critical objectives of a future digital dollar. This includes:

• Providing benefits to economic agents and overall economy that outweigh any costs and risks;
• Yielding such benefits more effectively than alternative methods;
• Complementing, rather than replacing, current forms of money;
• Protect consumer privacy;
• Protecting against criminal activity;
• Having broad support from key stakeholders.

The paper also provides some high-level design features of a CBDC.

• Privacy protection, which requires striking a balance between safeguarding privacy and deterring criminal activity;
• Intermediation: as the Federal Reserve Act does not allow individuals to hold accounts at the Federal Reserve, a CBDC would be intermediated by the private sector in the form of digital wallets.
• Transferability: a CBDC must be widely accessible and accepted between consumers and economic agents.
• Identity-based: compliance with anti-money laundering and terrorism financing regulations would require verifying the identity of users.

Engaging with Stakeholders

The Fed calls for public comments on the CBDC over the next 120 days. No decisions have been made about how a 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 would be structured or if it will be rolled out. “While a CBDC could provide a safeSecure container for storing money and valuables, with high resistance to breaking and entering. More, digital paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More option for households and businesses as the payments system continues to evolve, and may result in faster payment options between countries, there may also be downsides,” the Fed said.

“We look forward to engaging with the public, elected representatives, and a broad range of stakeholders as we examine the positives and negatives of a central bank digital currency in the United States,” Federal Reserve Chair Jerome H. Powell said.

This post is also available in:

Documents

• money-and-payments-20220120