US Fed Considering CBDC, But Not Decided To Pursue or Implement

Key Insights:

• US Federal Reserve is officially considering CBDC to complement existing payment systems.
• Fed rolled out a set of FAQs on CBDC.
• The central bank is exploring the benefits and risks of CBDCs from various angles.

The US Federal Reserve has stated officially that it is considering a central bank digital currency (CBDC). According to the central bank, it has not yet decided on pursuing or implementing a digital dollar.

The Fed, however, has previously released a CBDC report that stressed the use of stablecoins such as USD Coin and Tether; the Thursday announcement is the most significant to date.

Fed Exploring CBDC “Benefits and Risks”

The authority said in a Tweet today that it is exploring the potential benefits and risks of CBDCs.

While the Federal Reserve has made no decisions on whether to pursue or implement a central bank digital currency (CBDC), we have been exploring the potential benefits and risks of CBDCs from a variety of angles, including through technological research and experimentation. (2/3)

— Federal Reserve (@federalreserve) April 13, 2022

Additionally, it has released a set of FAQs on a CBDC, explaining why it is considering it now. The Fed says it is the “right time” to consider a digital dollar, given technological advances ushering in a wave of new private-sector financial products and services.

CBDCs could potentially offer a range of benefits, said the bank. For instance, a digital dollar could provide households and businesses with a convenient, electronic form of central bank money, offer entrepreneurs a platform to create new financial products and services, and support faster and cheaper payments.

The FAQ document also laid out a slew of possible risks associated with CBDCs.

“A CBDC could pose certain risks and raise a variety of important policy questions, including how it might affect the financial-sector market structure, the cost and availability of credit, the safety and stability of the financial system, and the efficacy of monetary policy.”

The Fed is seeking public commentary and opinion on this topic.

Lawmakers Critical of Fed’s Progress

In January, US lawmakers had pressed the Fed Chair Jerome Powell on the progress and status of the Fed’s CBDC review, which was due for release last summer.

Last month, Fed Governor Christopher Waller said that he isn’t convinced of the need for a CBDC for retail customers, in particular.

“Why do we really need it? I haven’t been convinced of that yet. It’s not saying that I can’t be, but I haven’t seen that on a retail CBDC.”

Another lawmaker Tom Emmer from Minnesota, introduced a bill in January to prevent unilateral control of the Fed over US CBDC. The congressman wanted to prohibit the central bank from issuing a digital dollar directly to individuals.