Digging Deeper Into How The US Federal Reserve Debates Over US Central Bank Digital Currency With “Long-awaited” Report

The Fed’s “long-awaited” report opened up a debate between benefits and risks of issuing a central bank digital currency in the United States. The possibilities could offer faster payment options, protection against counterfeiting and privacy, but at the same time it would remove control from sovereign governments. There is still no clear indication what direction the Fed will take. If passed by Congress, this could be another step forward for cryptocurrencies to be more widely accepted among investors and consumers alike.

For example: The possibility of faster payment options due to less processing time, along with privacy features including lack of transaction fees are all advantages which experts think can revolutionize this market. Yet issuing a digital currency could eliminate the need for physical cash, which is used as a backup in some emergencies and even as a way for some economies to promote growth by keeping money more widely available.

If passed by Congress, the Fed’s decision would be another step towards cryptocurrencies being more readily acceptable among investors and consumers alike. Although it has been held back due to regulation and volatility, the idea of cryptos replacing traditional fiat currencies still holds merit with many experts. A digital dollar presents an opportunity to take advantage of blockchain technology and can help spur wider adoption of such technologies across both the public and private sectors.

But at the same time, it would remove control from sovereign governments, who underlie all modern currencies, to the Fed. There is still no clear indication what direction the Fed will take to make their decision, but there is currently no specific bill in Congress for digital currencies.

The possibility of faster payment options due to less processing time, along with privacy features including lack of transaction fees are all advantages which experts think could revolutionize this market. Yet issuing a digital currency could eliminate the need for physical cash, which is used as a backup in some emergencies and even as a way for some economies to promote growth by keeping money more widely available. This has been held back due to regulation and volatility, but the idea of cryptocurrencies replacing traditional fiat currencies still holds merit with many experts. A digital dollar presents an opportunity to take advantage of blockchain technology and can help spur wider adoption of such technologies across both the public and private sectors.

But issuing a digital currency would remove control from sovereign governments, who underlie all modern currencies, to the Federal Reserve. There is still no clear indication what direction the Fed will take to make their decision, but there is currently no specific bill in Congress for digital currencies.

The US Federal Reserve opined about pros and cons of issuing a central bank digital currency in the United States with its long-awaited report on Wednesday (Feb 6). Researchers from the central bank outlined how a digital currency could offer benefits and entail risks: * It “could provide a safe, digital payment option for households and businesses as the payments system to evolve,” while “removing cash, the mechanism of choice for illegal activities, from circulation could have a debilitating effect on some already-fragile illicit marketplaces.” * It “could lower costs to households and businesses by providing greater efficiency in payment processing. However, those gains would be offset by the possible risks associated with giving up the anonymity provided”. * The Fed said issuing an official digital currency may entail “serious policy questions”. For example: “What type of entities should operate permissioned nodes within the distributed ledger to facilitate payments (for example, only depository institutions or also network banks)? Should entities outside of banking regulation play any role?” * Also, it remains difficult to predict how this technology will evolve over time or how it will affect various markets around economic activity.

“This effort is in very early stages and we will be evaluating how this technology develops and the possible uses for the U.S. dollar,” said Federal Reserve board Governor Lael Brainard, who oversees Fed research efforts on financial stability issues.

Under the current design of its central banking system, the Fed’s role as a provider of funds is limited to setting targets for credit markets and guiding policy for things like interest rates. The only way it can influence money supply is by buying assets such as government debt or mortgage-backed securities to “wire money” into an economy at times when there’s no demand for business credit.

A digital dollar would allow the central bank to simply turn on taps electronically to make more money available where and when it is needed.

In the future, a central bank-issued digital currency would make it possible for individuals to open accounts directly with the Fed by holding a digital credential issued by the U.S. Treasury’s Bureau of Fiscal Service, which manages government borrowing and tax collection.