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January 21, 2022

Federal Reserve Drops Report Outlining Pros and Cons of Central Bank Digital Currencies

By Daily Hodl Staff

The Federal Reserve has released its anticipated report on the feasibility of issuing a central bank digital currency (CBDC) in the United States.

The Fed says the report serves as the first step to discussing the pros and cons of creating a CBDC with the general public and key stakeholders but notes that it does not favor any particular policy outcome.

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The regulatory agency says that some cons associated with fiat-pegged stablecoins are that they could have the potential to disrupt the payments system, concentrate economic power, and make destabilizing run-ups.

With that in mind, the Fed says it’s brainstorming the possibility of creating a CBDC for the US economy as it is the most financially secure form of crypto available.

“Like existing forms of commercial bank money and non-bank money, a CBDC would enable the general public to make digital payments.

As a liability of the Federal Reserve, however, a CBDC would not require mechanisms like deposit insurance to maintain public confidence, nor would a CBDC depend on backing by an underlying asset pool to maintain its value.

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A CBDC would be the safest digital asset available to the general public, with no associated credit or liquidity risk.”

The report says that any CBDC would need to comply with the same rules that apply to financial institutions in order to prevent money laundering and the funding of illicit activities.

Other benefits of a CBDC include improving the efficiency of cross-border payments, supporting the role of the US dollar internationally, and bringing financial inclusion to those who face economic barriers.

The report concludes,

“A CBDC could potentially serve as a new foundation for the payment system and a bridge between different payment services, both legacy and new.

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It could also maintain the centrality of safe and trusted central bank money in a rapidly digitizing economy.”

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Featured Image: Shutterstock/Dinar Omarov/Sensvector