As central banks globally explore possibilities of adopting cryptocurrencies, the Federal Reserve is reviewing the benefits and risks of launching a digital currency in the US.
Fed officials are yet to agree on the matter. Some are for adopting a digital dollar, others are against the move. So, it’s unlikely, they’ll decide any time soon on the matter.
The digital currency by the Federal Reserve — unlike the private digital currencies such as Bitcoin and Ethereum — will be issued and backed by the US central bank. Think CBDC (or Central Bank Digital Currencies).
The digital dollar can distribute financial aid with ease
Fed digital dollar would make cross-border payments fast and cheap — helping less fortunate people who lack access to bank accounts and provide an efficient way for the government to distribute financial aid.
Another thing: a digital currency backed by the government will keep up with other global central banks in making domestic and international payments easy to execute.
Lael Brainard, Federal Reserve Governor, said she can’t imagine the United States not fronting the idea of adopting a digital dollar currency. “It’s just very hard for me…given the status of the dollar as a dominant currency in international payments”.
But Jerome Powell, Fed Chairman, thinks otherwise. He’s suggesting treading carefully on the matter. He believes it’s more important for the US to experiment with all possible risks and potential gains of a digital dollar beforehand than “to be first to market, in part because of the dollar’s critical global role”.
Fed research is early and exploratory
Powell and other officials said the CBDC research and its exploration have come too early. The Federal Reserve is considering issuing a CBDC but only if the digital dollar will be viable enough — with benefits far outweighing the costs and risks.
Powell said adopting CBDC is a challenging move intimating that many US citizens actively use (and prefer) physical cash and credit cards.
He also pointed out privacy issues surrounding digital currencies need to be addressed as CBDCs will compel the central bank to see what every user did with the currency. To make a better decision, Powell says they’ll work on both public policy and technology.
Randal Quarles, the central bank’s point man on crypto regulations, is skeptical about the US adopting a digital currency.
He said the dollar is already “highly digitized” and is doubtful that CBDCs will attract people without bank accounts into the financial system. He thinks we need to carefully analyze CDBCs “before we get carried away with the novelty”.
