US Federal Reserve Publishes CBDC Report, Wants Further Dialogue

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In Brief
  • The Federal Reserve published a paper analyzing the benefits and risks of CBDCs.

  • While it did not recommend any specific policy, it does want more discourse to inform its decision.

  • It cites cybersecurity, consumer privacy rights, and the prevention of financial crimes as some areas of concern.

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The U.S. Federal Reserve has published a lengthy paper on a dollar-based central bank digital currency and asked for input. It did not recommend any specific policy, though it did state that a CBDC could improve the financial system.

The United States Federal Reserve has published its biggest statements yet on a Central Bank Digital Currency (CBDC) for the U.S. Dollar, in the form of a report published on Jan. 20. Titled “Money and Payments: The U.S. Dollar in the Age of Digital Transformation,” the paper discusses the potential benefits and risks of CBDCs in the U.S. economy and seeks to generate dialogue on the matter.

Work on the paper was first announced in September 2021. The overall takeaway is that the Federal Reserve sees a CBDC bolstering the economy, but with private banks as stakeholders being a part of the system, as opposed to the Federal Reserve issuing the currency directly to citizens.

U.S. officials have not taken strong stances overall, and the paper does not recommend specific policy, preferring to foster dialogue with inputs from stakeholders and the general public. Among the primary concerns are cybersecurity, consumer privacy rights, and the prevention of financial crimes.

The paper has been a long time coming, with many experts and analysts wondering about when the U.S. might begin a more thorough review of a CBDC. With countries like China already having launched multiple pilots, these analysts have been wondering for how much longer other major economies would be lagging.

While no official policy has been stated, the paper does put down a few pillars as necessary for a CBDC, saying,

“The Federal Reserve will continue to explore a wide range of design options for a CBDC. While no decisions have been made on whether to pursue a CBDC, analysis to date 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.”

Despite cautious approach, digital dollar CBDC seems likely

The U.S. has been noted as being very cautious when it comes to a CBDC, even as other major economies pick up the pace. The country is looking to get things right as opposed to being the first one and does not want to risk any mistakes.

China has launched multiple pilots with volumes of its digital renminbi reaching nearly 90 billion, and the asset will be used in the upcoming 2022 Winter Olympics in Beijing. Some countries are a little further along than the U.S. Nigeria, Sweden, France, Canada, Australia, and India are among the many that are reviewing the implementation of a CBDC.

Perhaps the U.S. will announce a CBDC trial by the end of the year. But, for the moment, it seems like it just wants as much input as it can get before it begins the majority of the work.

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Rahul's cryptocurrency journey first began in 2014. With a postgraduate degree in finance, he was among the few that first recognized the sheer untapped potential of decentralized technologies. Since then, he has guided a number of startups to navigate the complex digital marketing and media outreach landscapes. His work has even influenced distinguished cryptocurrency exchanges and DeFi platforms worth millions of dollars.

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