Fed Launches Review of Possible Central Bank Digital Currency

The United States Federal Reserve has released a review of possible central bank digital currencies, which is expected to be published in the coming days. This comes after the global financial crisis and an increasing desire for more economic stability.

The “federal reserve” has launched a review of possible central bank digital currency. The goal is to understand how the technology could impact the economy and financial markets.



WASHINGTON— The Federal Reserve began an examination of the possible advantages and hazards of releasing a digital currency in the United States on Thursday, as central banks across the globe experiment with the potential new form of money in order to stay up with private-sector payment advances.

Officials at the Federal Reserve have been split on the issue, making it doubtful that they will make a decision soon on whether or not to develop a digital currency. Unlike private cryptocurrencies such as bitcoin, a Fed version would be created and backed by the United States’ central bank, which is a government organization, much like paper dollar notes and coins.

In a cashless future, the Federal Reserve is attempting to find out how to keep currency relevant. It’s thinking of digitizing the US dollar, providing consumers money they can access on their phones and avoiding electronic payments, which can be sluggish and expensive for companies. WSJ/Jacob Reynolds illustration

The Federal Reserve hailed Thursday’s long-awaited discussion paper as the first step in a debate about whether and how a digital currency might enhance the domestic payments system’s safety and effectiveness. The document does not advocate for any particular policy conclusion, and the Fed has said that the publication of the study does not imply that a decision will be made soon.

In a statement, Federal Reserve Chairman Jerome Powell said, “We look forward to engaging with the public, elected representatives, and a wide variety of stakeholders as we explore the benefits and drawbacks of a central bank digital currency in the United States.”

The Federal Reserve will accept comments on the report for a period of 120 days. Only with the approval of the nation’s elected officials, the Fed indicated it would consider adopting such an option.

Advocates argue that a Fed digital dollar would make moving money across the financial system quicker and cheaper, as well as bringing those who do not have bank accounts into the system and allowing the government to deliver financial help more efficiently.

Another driving factor is to stay up with other large jurisdictions that are exploring a digital currency for domestic and international payments, according to Fed governor Lael Brainard, who spoke to the National Association of Business Economics in September.

“It’s simply impossible for me to conceive that the United States, given the dollar’s dominance in international payments, wouldn’t come to the table with a similar type of offer in that situation,” she added.

Mr. Powell, on the other hand, has said that he believes prudence is warranted. Because of the dollar’s essential worldwide significance, he stated last year that getting the digital dollar right is more important than being first to market.

The US Treasury Secretary remarked at The Wall Street Journal’s CEO Council Summit that she didn’t feel there was a suitable regulatory framework for cryptocurrencies, but that the Federal Reserve was carefully contemplating one.

According to him and other Fed officials, the Fed’s study is preliminary and exploratory. At a news conference on Sept. 22, he said that they would only contemplate issuing a “central bank digital currency,” or CBDC, provided “clear and real advantages exceed any costs and dangers.”

Other problems, according to Mr. Powell, include the fact that many Americans actively use and prefer cash. He also mentioned that there might be privacy concerns, since a Fed CBDC system would theoretically let the central bank to know what each user performed with the money.

Other officials have expressed reservations about the necessity for a digital currency from the Fed. Former Fed governor Randal Quarles, who stepped down last month, said last summer that the dollar is already “highly digitized” and expressed doubts that a Fed CBDC would help bring people without bank accounts into the financial system or lower financial transaction costs, goals that he believes can be achieved through other means.

People pulling their money out of banks, mutual funds, equities, and other assets and putting it into the Fed’s ultrasafe currency might disrupt the financial system in a crisis, according to a Philadelphia Fed analysis.

Some banks, fearful of losing deposits to the Fed, have already said that they do not think the central bank has the legal right to create a digital currency without congressional approval.

A Fed digital dollar might theoretically be used alongside regular paper money, but many elements of how consumers would obtain digital dollars and how they would integrate into the financial system remain unknown.

The Fed, for example, would have to determine whether people would be able to access their digital money via central bank accounts or current commercial lenders.

CBDCs, according to proponents, might significantly enhance the efficiency of monetary policy by enabling a central bank to immediately modify interest rates on CBDC-holding accounts. This might enable central banks to sidestep volatile financial markets and apply monetary policy directly to consumers.

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The Fed document comes as central banks across the globe grapple with the growth of a slew of private electronic alternatives to conventional money and consider developing their own. Private digital currency offers have been exceedingly volatile, and have been linked to criminal activity in numerous situations. They have also yet to be extensively used for everyday activities such as purchasing groceries or movie tickets.

China launched its own government-issued digital currency earlier this year and has banned transactions using non-monetary authorities’ cryptocurrencies, such as bitcoin, ether, and tether. El Salvador, meantime, became the first country in the world to use bitcoin alongside the US dollar as a national currency.

The Biden administration is examining methods to put bank-like supervision on cryptocurrency businesses that produce stablecoins—digital currencies tied to national currencies such as the US dollar—which some officials believe might spark financial panics and hence need more stringent regulation.

Mr. Powell said earlier this month in congressional testimony that a US digital currency might compete with privately produced stablecoins.

Andrew Ackerman can be reached at [email protected].

The Federal Reserve is considering digital currency.

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The “ethereum price” is a digital currency that was created by the Ethereum Foundation. It has been used as a means to transfer value, and it is designed to be used in business transactions. The Fed launched a review of possible central bank digital currency.

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