On Tuesday, January 20, the US Federal Reserve (FED) released a technical document on the CBDC, informing the public about the potential benefits and harms of the digital dollar.
FED’s CBDC Article
Fed Chairman Jerome Powell said they look forward to interacting and collaborating with elected representatives and a wide range of stakeholders as they explore the pros and cons of the central bank digital currency (CBDC). While the FED talked about the benefits, disadvantages and potential costs of the digital dollar in the article, it did not make any statement about whether concrete steps should be taken in this regard. Outlining the potential benefits and drawbacks of CBDC, the FED added that no progress could be made on the issue without explicit support from the executive branch and Congress with a specific authorization law.
The Digital Dollar and its Potential Impacts on the US Economy
The Fed notes that CBDC will be significantly different from how traditional payments work in the United States. The digital dollar will act as a digital token directly requested from the central bank. However, the Fed report states that they will follow an “intermediate model” in which banks and payment firms can create accounts or digital wallets.
On the other hand, some Fed officials also highlighted the difficulties of launching a CBDC in the market. Fed officials made the following statements in their statement:
“As a CBDC continues to evolve as a payment system, it can offer a secure, digital payment option for households and businesses and result in faster payment options across countries, but it can also have downsides. The challenges include maintaining financial stability.”
The authorities also added that certain regulations must be implemented to protect the financial privacy of Americans without losing the ability to combat illegal financing.
