The US Federal Reserve opens public comment after releasing a discussion paper on the pros and cons of a potential central bank digital currency, or CBDC.
In a post published Thursday, titled “Money and Payments: The US Dollar in the Age of Digital Transformation,” the Fed said it likely would not be authorized to issue digital wallets or accounts capable of receiving a digital currency from the US central bank. , but would leave these matters to the private sector. In addition, the government body said it would consider privacy issues, whether a CBDC could be “easily transferable between clients of different intermediaries” and identity verification to combat money laundering and terrorist financing.
The document added that the implementation of a CBDC by the United States could mitigate the risks of “proliferation of private digital money”, while fostering innovation in the private sector, leveling the playing field between large and small companies, to where some of the costs of issuing your own digital currency can be prohibitive. Cross-border payments, the speed and efficiency of digital payments, and additional financial inclusion are some of the potential benefits of a digital dollar.
“A CBDC could fundamentally change the structure of the US financial system, altering the roles and responsibilities of the private sector and the central bank,” the Fed document says. “Some have suggested that if these new CBDCs were more attractive than of the US dollar, the global use of the dollar could decline, and a US CBDC could help preserve the international role of the dollar.”
As for the risks of introducing a digital dollar to the US and global economy, the Fed said a CBDC could effectively replace commercial bank money, driving up prices for retail customers and driving interest away from banks. investments in “investment funds, Treasury Notes and other short-term instruments”. The document also repeated some of the concerns previously raised by officials about the stability of the current financial system, such as how the Fed might need to increase its reserves based on demand for a digital currency, and striking the balance between privacy of the user and the necessary transparency to avoid fraud.
To do this, the Federal Reserve opens public comment for 120 days, until May 20, and asks interested citizens to answer 22 questions related to the possible implementation of a digital dollar, benefits, risks, design and political considerations. :
“The Federal Reserve will only take further steps toward developing a CBDC if research points to benefits for households, businesses, and the broader economy that outweigh downside risks, and indicates that CBDC is superior to alternative methods.” Furthermore, the Federal Reserve would only pursue a CBDC in the context of broad public and intergovernmental support.”
First announced by Fed Chairman Jerome Powell in May 2021 for release this past summer, the release of the CBDC discussion paper has been delayed multiple times. On Jan. 11, during his testimony before members of the Senate Banking Committee, Powell said the document would be released within weeks after delays due to “changes in monetary policy.”
Although a Fed notice claimed that the discussion paper “does not favor any political outcome,” Powell has previously suggested there was no rush for the United States to launch a digital dollar despite other countries, including China, moving forward with tests. in different cities. Athletes are expected to travel to China for the 2022 Winter Olympics in a few weeks, when competitors and visitors will have the opportunity to use the country’s digital yuan.