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Federal Reserve’s Top Official: US CBDC Still a Distant Dream

2 mins
Updated by Geraint Price
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In Brief

  • Michael S. Barr emphasized the Federal Reserve's dedication to broad access and financial inclusion in payments.
  • The Fed introduced the "FedNow Service" for instantaneous payments available 24/7.
  • The issuance of a US CBDC requires clear executive and legislative support and remains distant.
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In a speech at the Federal Reserve Bank of Philadelphia’s Seventh Annual Fintech Conference, Vice Chair for Supervision Michael S. Barr articulated the Federal Reserve’s (Fed) stance on central bank digital currencies (CBDCs). 

While much of the speech centered around the advancements in electronic payments and the pivotal role the Federal Reserve plays, there was a pronounced emphasis on CBDCs and their place in the United States’ financial future.

Fed Stresses Consumer Protection

Michael Barr reiterated the Federal Reserve’s commitment to supporting broad access and promoting financial inclusion through payments. The Fed recognizes payments as an integral part of daily life and proactively ensures that households and businesses, especially those from low and moderate-income backgrounds, access essential payment services. 

Barr stressed the importance of consumer protection, fostering competition, and maintaining trust as the system evolves. Highlighting the Federal Reserve’s transition from facilitating payments using physical checks to improving electronic payments infrastructure, Barr introduced the FedNow service. Launched in July, this service facilitates instantaneous payments, ensuring funds are available 24/7. 

Learn more about the Bitcoin Lightning Network, which allows Bitcoin users to send and receive instant payments.

The service, available to all depository institutions, seeks to streamline the payment process and is viewed as a supplementary solution to private-sector payment services. Such advancements can potentially revolutionize how consumers and businesses interact financially, especially for time-sensitive transactions.

US Treasury Secretary Janet Yellen discusses creating a digital dollar | Source: YouTube

The discourse then shifted to newer technologies that could redefine the payments market. Barr mentioned the increasing interest in programmable payment platforms, distributed ledger technology, blockchain technology, and new digital assets such as cryptocurrencies, stablecoins, and CBDCs.

Decision on Issuing CBDC Some Way Off

However, the focal point for many was Barr’s candid remarks about CBDCs. He emphasized the Fed’s ongoing research into CBDCs, particularly in system architecture and tokenization models. 

Despite this, Barr was clear, emphasizing that the Fed remains a considerable distance from deciding on issuing a CBDC. Any such action would require clear support from the executive branch and authorizing legislation from Congress.

“The Fed has made no decision on issuing a CBDC and would only proceed with the issuance of a CBDC with clear support from the executive branch and authorizing legislation from Congress,” Barr said

What exactly are stablecoins? Click here for our beginner’s guide.

The Fed’s cautious and meticulous approach reflects its commitment to preserving the integrity of the US payments system. Barr emphasized the need for stablecoin offerings to operate within an appropriate federal prudential oversight framework, highlighting concerns about the potential risks of non-federally regulated stablecoins.

“If non-federally regulated stablecoins were to become a widespread means of payment and store of value, they could pose significant risks to financial stability, monetary policy, and the US payments system.

It is important to get the legislative and regulatory framework right before significant risks emerge,” Barr added.

Concluding his address, Barr praised the Federal Reserve Bank of Philadelphia for fostering a platform for stakeholders to collaborate. The future of financial technology remains dynamic, and the Fed is actively engaged in understanding and navigating its intricacies.

For now, the idea of a US CBDC remains a distant dream, with the Federal Reserve prioritizing research, stakeholder engagement, and the well-being of the US payments system.

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