Fed Remains Undecided On The Benefits Of A CBDC For The U.S. Economy
The Federal Reserve (Fed) is still undecided whether a central bank digital currency (CBDC) would be beneficial for the American economy, the recent discussion paper from the U.S. central bank reveals.
The discussion paper examines the advantages and disadvantages of rolling out a potential U.S. CBDC. This is the first conversation that the Fed has organized with the broad public to determine whether and how the digital version of the dollar could benefit the U.S. economy
Both sides of the coin
The world – China as the leader – is racing to issue their own central bank digital countries and implement them in their monetary network. However, it seems the United States is in no rush.
Over a year ago, Jerome Powell, Chairman of the Federal Reserve, assured that the world’s leading economy will first “carefully and thoughtfully” examine the matter before jumping into decisions.
In the most recent discussion paper, the Fed the pros and cons of a CBDC. Powell stated:
“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.”
The report pointed out that transferring money in digital form is nothing new. We have long had bank accounts or online transactions that are done digitally. As such, a potential central bank digital currency could continue the trend and provide a “safe, digital payment option for households and businesses.” Additionally, CBDC transactions could result in faster cross-border settlement opportunities.
The downside is that the digital version of the US dollar could go against people’s privacy as the government would control the monetary product. It may also not be beneficial for America’s financial stability and not advance the existing means of payment.
Powell said last year that a CBDC’s main benefit could be to battle the rise of cryptocurrencies, including stablecoins. Nonetheless, earlier this month, he changed his viewpoint and said that central bank digital currencies and stablecoins could co-exist.
China approach not suitable for the U.S.
Back in April 2021, Powell said that the U.S. should not adopt the Chinese model of a central bank digital currency. The two economic superpowers are very different and require distinctive approaches. He elaborated:
“The currency that is being used in China is not the one that would work here. It’s one that really allows the government to see every payment for which it is used in real time.”
Interestingly, the U.S. is not famous for protecting its citizens’ privacy, so probably that is not the real reason for withholding entering the CBDC race.
