Federal Reserve Still Undecided On US CBDC

The Federal Reserve is still deciding whether or not to issue a central bank digital currency (CBDC), according to a statement from Lael Brainard, a Federal Reserve Board Governor.

Brainard, a proponent of a federal backed digital dollar, that the Federal Reserve Board recently created a discussion paper outlining the Federal Reserve’s current stance on the potential benefits, risks, and policy considerations of a US CBDC.

According to Brainard, the paper ‘does not advance any specific policy outcome and does not signal that the Board will make any imminent decisions about the appropriateness of issuing a a US CBDC.”

Instead, the Board governor says that the paper lays out four CBDC design principles that analysis to date suggests would best serve the needs of the United States if one were created.

“Those principles are that a potential CBDC should be privacy-protected, so consumer data and privacy are safeguarded; intermediated, such that financial intermediaries rather than the Federal Reserve interface directly with consumers; widely transferable, so the payment system is not fragmented; and identity-verified, so law enforcement can continue to combat money laundering and funding of terrorism.”

Brainard said that the growth in the “crypto finance ecosystem” is fueling a demand for stablecoins, which she describes as “digital assets that are intended to maintain stable value relative to reference assets, such as the U.S. dollar.”

“In the future, some issuers envision that stablecoins will also have an expanded reach in the payment system and be commonly used for everyday transactions, both domestic and cross-border,” she said.

Brainard believes that the US should have a framework in place to insurance the “quality and sufficiency of reserves and risk management and governance,” to prevent a surge in redemption demand should an issuer not be able to meet redemption requests.

“The Federal Reserve needs to be preparing for the payment landscape of the future even as we continue to make improvements to meet today's needs,” Brainard said.

“In light of the rapid digitalization of the financial system, the Federal Reserve has been thinking critically about whether there is a role for a potential U.S. central bank digital currency (CBDC) in the digital payment landscape of the future and about its potential properties, costs, and benefits.”