Fed Seeks Public Comment on Potential Digital Currency

The Federal Reserve Board has released a discussion paper examining the pros and cons of a potential U.S. central bank digital currency, or CBDC, and is inviting comment from the public.  The paper is the first step in a discussion of whether and how a CBDC could improve the safe and effective domestic payments system, the Fed said, adding that the paper does not favor any policy outcome. The Fed’s analysis suggests that a potential U.S. CBDC, if one were created, would best serve the needs of the United States by being privacy-protected, intermediated, widely transferable, and identity-verified. “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. The paper summarizes the current state of the domestic payments system and discusses the different types of digital payment methods and assets that have emerged in recent years, including stablecoins and other cryptocurrencies. The Fed defined a CBDC as a digital liability of a central bank that is widely available to the general public, analogous to a digital form of paper money. According to the paper, Federal Reserve policymakers and staff have studied CBDC closely for several years, guided by an understanding that any U.S. CBDC should, among other things:

• provide benefits to households, businesses, and the overall economy that exceed any costs and risks;
• yield such benefits more effectively than alternative methods;
• complement, rather than replace, current forms of money and methods for providing financial services;
• protect consumer privacy;
• protect against criminal activity; and
• have broad support from key stakeholders.

The Fed said it is committed to soliciting and reviewing a wide range of views as it continues to study whether a U.S. CBDC would be appropriate. Comments will be accepted for 120 days and can be submitted here.

Meanwhile, Bloomberg is reporting that the Biden administration is preparing to release an initial government-wide strategy for digital assets as soon as next month and will task federal agencies with assessing the risks and opportunities that they pose. Bloomberg reported that senior administration officials have held multiple meetings on the plan, which is being drafted as an executive.