The US Federal Reserve believes it’s the right time to have a central bank digital currency (CBDC) as technological advancements have come far enough to boost the existing systems. The United States is now officially considering its very own CBDC.
The Federal Reserve has been exploring the benefits and risks associated with it for quite some time now. It has been looking at a variety of angles through experimentation and technological research. Moreover, the US’s central banking system is asking for public commentary on the same. The Federal Reserve explained that it wants to use technological advances like digital wallets, mobile payment apps and cryptocurrencies as well as stablecoins to improve the already safe and efficient America’s domestic payments system.
It highlighted that five points that will guide the consideration of a CBDC:
i. The benefits for households, businesses, and the overall economy
ii. Yield benefits more effective than alternative methods
iii. Consumer privacy
iv. Complementing currency forms of money and financial services
v. Protection against criminal activity
The central bank is committed to ensuring the continued safety and availability of cash. It is considering the CBDC as a means to expand safe payment options, and not to reduce or replace them. A CBDC, as per the Federal Reserve, could provide households and businesses a convenient, electronic form of central bank money with the safety and liquidity that would entail. It could give entrepreneurs a platform to create new financial products and services. A CBDC could support faster and cheaper payments, especially cross-border payments.
The Federal Reserve highlighted that financial institutions in the US are subject to robust rules that are designed to tackle money laundering and the financing of terrorism. As such, a CBDC has to be designed to comply with the same. It said that a CBDC intermediary would need to verify the identity of the person accessing it, in the same manner as banks and other financial institutions currently verify the identities of their customers.