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Fed releases long-awaited study on a digital dollar, but doesn’t take a position yet on creating one


Jerome Powell, Chairman of Federal Reserve Board, speaks at the re-nomination hearing for Senate Banking, Housing and Urban Affairs Committee, January 11, 2022 in Washington, DC.

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Thursday’s long-awaited Federal Reserve study on a digital currency was released. It examines both the pros/cons of this controversial issue, and seeks public feedback.

The 40-page document is described as the “first step in a public conversation between the Federal Reserve Bank and stakeholders about central banks digital currencies,” but it doesn’t draw any conclusions. a central bank digital currency. The original report was due in summer 2021. However, it had been delayed.

It instead provides a comprehensive look at the benefits, such as the speeding of electronic payments systems at a moment when many financial transactions are already digitalized around the globe. The report also discusses the risks to financial stability and the protection of privacy while protecting against fraud.

According to the report, “A CBDC could fundamentally transform the U.S. Financial System structure and alter the roles of the central bank and private sector.”

Fed Chairman Jerome PowellIn public comments about the CBDC, has been mostly non-committal. Fed Governor is the biggest supporter of this concept. Lael BrainardNominated as vice-chair of the Federal Open Market Committee’s policy-making Federal Open Market Committee,

Other Fed officials voiced doubt over the digital dollars, noting that they aren’t obvious.

The Fed’s digital dollar is different from other transactions. Current digital money is considered a commercial bank liability, while the CBDC is an Fed liability. The Fed would not pay interest on funds stored with it. However, it’s riskless so some depositors may choose to leave their money with the central banks.

It lists 22 items on a check list and invites feedback. You will have 120 days to comment. Federal officials claim that this report is only one step of a long process. However, there are no timelines for its completion.

Powell stated that he was looking forward to speaking with elected officials and the general public as they examine the negatives and positives of the digital currency of the United States’ central bank.

Thursday’s paper notes that the Fed has “initially analysed that a U.S. CBDC would be best served by the United States, privacy-protected and intermediated. Widely transferable. And identity-verified.”

Report ‘takes no position’

The report states, however that the “report is not designed to promote a particular policy outcome” and does not take stance on whether the digital currency is desirable.

One of its most notable benefits is the ability to quickly transfer stimulus payments from the Fed, in cases like the Covid pandemic. It has also been noted that providing financial services to the homeless is an asset.

But, the Fed has already begun to develop what it describes as “round-the clock payment- and settlement service”. called Fed NowThis is what we expect to see online in 2023.

The digital currency advocates worry about the Fed’s inability to implement a central banking currency. This could make it more competitive with global rivals, including China. China has already made progress with its product. Some have suggested that China could eventually challenge the U.S. dollar’s dominance as world’s reserve currency.

Powell and Fed officials however, say that they do not care how fast the project moves, but emphasize the necessity to make it work.

According to the report, “Introducing a CBDC in American money would be a significant innovation.” It is crucial to consult the broadest possible audience and other key stakeholders. “This paper is just the beginning of such a conversation.”

Additionally, the Fed stated that they will not act without clear authorization from Congress. This would be in the form of a “specific authorizing law”.