“The introduction of a CBDC would represent a highly significant innovation in American money,” says The Fed in its much-anticipated report on the possible issuance of a U.S. digital currency.
The 35-page discussion paper on a government-backed coin makes no firm conclusions on whether (making it clear it did not “favour any policy outcome” at this point) it should be issuing a CBDC, but instead solicits feedback (as Powell had previously explained would be its purpose).
Powell has previously said any CBDC should serve “as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks”.
The bank in the paper said a digital dollar could bolster the financial system by ensuring the U.S. dollar remains the preeminent currency in the international financial system, improve cross-border payments and increase financial inclusion and ease the dollar’s use in new technology.
However, the central bank also warned of possible negative effects, including draining deposits from traditional banking and making runs on financial firms more likely or more severe.
The Fed said:
“While a CBDC could provide a safe, digital payment option for households and businesses as the payments system continues to evolve, and may result in faster payment options between countries, there may also be downsides.”
“They include how to ensure a CBDC would preserve monetary and financial stability as well as complement existing means of payment. Other key policy considerations include how to preserve the privacy of citizens and maintain the ability to combat illicit finance,” it added.
In the paper, the central bank noted that inaction on developing a digital US currency might erode the country’s supremacy in global markets.
“It is important . . . to consider the implications of a potential future state in which many foreign countries and currency unions may have introduced CBDCs,” the Fed said.
“Some have suggested that, if these new CBDCs were more attractive than existing forms of the US dollar, global use of the dollar could decrease - and a US CBDC might help preserve the international role of the dollar,” it added.
The bottom line - this document is a nothing-burger in terms of any further insight into if and when The Fed will unleash digital money on the citizenry since comments are sought and ultimately this has to be approved by Congress.
"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 Chairman Jerome Powell said in a statement.
“The Federal Reserve does not intend to proceed with issuance of a C.B.D.C. without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law,” he added.
Read the full report below: