US Fed invokes debate with release of CBDC whitepaper

  • The Fed has released a whitepaper discussing the details, benefits, and challenges of a possible US. CBDC.
  • Fed officials have expressed opposing viewpoints regarding the development of the digital dollar.

As with hundreds of other nations globally, the US is now mulling over its own CBDC (central bank digital currency). On Thursday, the country’s central bank (the Federal Reserve) released a whitepaper that weighs the pros, cons, and costs of such a move. It does not, however, give a stand on whether the US should pursue such a project. For the next 120 days, the Fed will collect comments on the project via an online form.

“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,” Fed Chairman Jerome Powell noted.

Particulars of the US CBDC

Per the whitepaper, the CBDC would not run through a bank, as other traditional digital payment systems in the US do. The central bank would, however, have a claim on the CBDC similar to how physical dollars are all ‘Federal Reserve Notes’ held by the bearer. The project would also follow an “intermediate model,” which allows banks and payment firms to create accounts or digital wallets supporting the digital dollar. However, banks have concerns that such an approach would diminish their deposit base.

Related: Private crypto could exist alongside a Fedcoin, U.S Fed chair says

Fed officials say an American CBDC would provide “a safe digital payment option for households and businesses as the payment system continues to evolve.” Additionally, it would fasten digital payments between the US and other countries. 

However, it highlights the downsides of such a currency, stating:

Challenges include maintaining financial stability and making sure the digital dollar would ‘complement existing means of payment.’

Furthermore, the officials said the need to protect American citizens’ privacy while using the CBDC would emerge. Recall many CBDCs have received criticism for privacy encroachment among other misdeeds. The whitepaper also notes that it would be necessary to develop ways to combat the use of the CBDC in illicit finance.

Project sparks Fed Debate

The project has sparked debate among the Fed’s top officials, with Fed Governor Lael Brainard saying delaying the project is not “sustainable”. He cited CBDC development in competing economies, of which China is the most advanced in the world. Some officials concurred, saying holding off a CBDC would weaken the US position as the holder of the global reserve. Meanwhile, opposers say the US already has various digital payment systems.

However, the Fed has clarified that it will not proceed with plans for a Digital dollar “without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.” It has, nevertheless, said such a project “would best serve the needs” of American citizens.

Of note, the Boston Fed and the MIT (Massachusetts Institute of Technology) are separately working on the technological aspects of a US CBDC. Among them is possible coding, which will be released as early as next month.

Related: UK House of Lords resists the ‘Britcoin’ CBDC but Bank of England still interested

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