The Fed has Issued Its Discussion Paper on CBDCs – It Wants to Hear From You -Breaking
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The Fed has Issued Its Discussion Paper on CBDCs – It Wants to Hear From YouThe U.S. Federal Reserve released its eagerly awaited discussion paper late Thursday. It outlines the debate about whether the U.S. should deploy its own digital currency (CBDC) as its central bank.
A CBDC refers to the virtual form of a fiat currency, which is built on a private blockchain that’s run or authorized by a government in support of its country’s official money. CBDCs are generally regulated and issued by a country’s central bank or governing monetary agency. Since CBDC’s are created by their respective country, they are also backed by the full faith and credit of that issuing government.
The Fed’s 40-page report titled – Money and Payments: The U.S. Dollar in the Age of Digital Transformation – looks at the pros and cons of CBDCs, different characteristics with which hey can be programmed, their variety of uses, and more.
The positive effect it can have on traditional U.S. dollars is perhaps one of the most convincing use cases for U.S. CBDC. This excerpt is from the paper.
The dollar is the world’s most widely used currency for payments and investments; it also serves as the world’s reserve currency. The dollar’s international role benefits the United States by, among other things, lowering transaction and borrowing costs for U.S. households, businesses, and government. The dollar’s international role also allows the United States to influence standards for the global monetary system.
The dollar’s liquidity and size, as well as the openness and transparency of U.S. economic markets and international trust in U.S. institutions, law and governance, make it widely accepted around the world. Consider the potential consequences for a future US state, where CBDCs could be introduced by currency unions or foreign governments. Some have suggested that, if these new CBDCs were more attractive than existing forms of the U.S. dollar, global use of the dollar could decrease—and a U.S. CBDC might help preserve the international role of the dollar.
Multiple times, the Fed reiterated in paper that there is no position formal yet and would only move further towards developing CBDC if it finds that benefits are greater than the downside risk for businesses and households. This indicates that CBDC outperforms other options.
A CBDC would be pursued by the Federal Reserve only if it has broad public support and is supported cross-governmentally.
The Fed stated that it would conduct targeted outreach to build support and host public forums in order foster broad discussion about the U.S. CBDC. It also stated that all parties are welcome to comment on the 22 specific questions found in the discussion paper’s pages 21-22.
If you’re interested in providing comment, the Fed is looking to have any answers to its questions, submitted by May 20, 2022, using the form at https://www.federalreserve.gov/apps/forms/cbdc.
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