The Federal Reserve has released a long-awaited report on the concept of a digital dollar, but it declined to give an opinion on the actual creation of such a currency, saying that more insight from the public is needed.
"This paper is the first step in a public discussion between the Federal Reserve and stakeholders about central bank digital currencies (CBDC)," the report reads. "The paper has been designed to foster a broad and transparent public dialogue about CBDCs in general, and about the potential benefits and risks of a U.S. CBDC."
CBDCs, according to the report, would function as a "digital liability of a central bank... analogous to a digital form of paper money". The report further states that its purpose is not "to advance any specific policy outcome" or to give an indication of imminent Federal Reserve decisions about issuing a CBDC.
"Initial analysis suggests that a potential U.S. CBDC, if one were created, would best serve the needs of the United States by being privacy-protected, intermediated, widely transferable, and identity-verified," the report continues.
The Fed's report was initially expected to come out last summer, but its release was delayed.
Included in the report is an overview of the possible benefits of a CBDC like speedier electronic payments and financial services for those without a bank, as well as drawbacks like potential instability, fraud, and illegal behavior.
"A CBDC could fundamentally change the structure of the U.S. financial system," the report says, "altering the roles and responsibilities of the private sector and the central bank."
Speedier transactions might be one of the most often cited benefits of a CBDC, but it doesn't make much sense as a justification. Already, digital transactions are faster than ever before, and the Fed is in the process of developing a "round-the-clock payment and settlement service" to be introduced next year.
Meanwhile, digital currency advocates say that delaying the creation of a CBDC will put the U.S. behind its competitors, potentially threatening the dollar's position as the world's reserve currency.
The most vocal supporter of introducing a CBDC within the central banking system is Fed Governor Lael Brainard, who was recently nominated to serve as vice-chair of the Federal Open Market Committee. The Fed's Chairman, Jerome Powell, on the other hand, has been largely noncommittal on the potential creation of a CBDC, and other officials have voiced concern over possible CBDCs.
The report states that there will be a 120-day period during which the public can comment on the possible creation of CBCD. The Fed also says that it will be seeking "input from a wide range of stakeholders that might use a CBDC or be affected by its introduction."
"We look forward to engaging with the public, elected representatives, and a broad range of stakeholders as we examine the positives and negatives of a central bank digital currency in the United States," Chairman Powell said in a statement.
The Fed stated in the report that it won't be moving forward with a CBDC "without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law."
Around the world, 90 countries are currently in the process of introducing their own CBDCs. Unlike cryptocurrencies, these digital currencies are run and backed by central banks, rather than private actors.
