Fed Opens Debate on CBDC, Takes No Policy Stance

The Fed was careful not to take a side in its Central Bank Digital Currency white paper Thursday, which the industry has been waiting for since May

article-image

Jerome Powell, chairman, Federal Reserve; blockworks exclusive art by Axel Rangel

share

key takeaways

  • The Federal Reserve released its Central Bank Digital Currency report Thursday but made no indication of a policy stance
  • A CBDC would be the safest digital asset available to the general public, the report said

The Federal Reserve avoided taking a side on a central bank digital currency in its highly anticipated white paper released Thursday. 

In the 40-page report, the Fed outlines the advantages and disadvantages of creating and implementing a CBDC, but made no policy recommendations. The report comes as other nations move forward with their own CBDC plans. 

China and Russia have both expressed interest in creating CBDCs. China has already launched wallets to test its eCNY, which it hopes to have up and running by the Winter Olympics this year. Russia revealed in December that it was moving toward developing a CBDC, partly in response to the threat of Russian banks being possibly disconnected from the global financial system. 

In June, the European Central Bank argued that central banks that chose not to establish official digital currencies were risking losing autonomy and control over their financial systems in its own report. The Bahamas became the first nation to issue an official digital currency with the Sand Dollar’s launch in 2020. 

The Fed has taken a more cautious approach. Fed chair Jerome Powell has repeatedly emphasized the need for the central bank to move carefully in any plans, stating in March that the US does not have to be first when it comes to a CBDC, but it does have an obligation to be the best. 

In the report, researchers highlight the potential benefits and risks of a digital dollar. 

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

It could also help to “level the playing field in payment innovation for private-sector firms of all sizes.” 

But a CBDC raises questions, too, researchers noted. The stability of the current financial system may be compromised and there may be unforeseen implications for the existing “financial-sector market structure.” 

The Fed will be accepting public comment until May 20, 2022. Should the central bank decide to move forward with CBDC implementation, Congressional approval would be needed. The report also noted that the central bank has no plans to move forward with a CBDC without support from Congress and the executive branch. 

“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,” Fed chair Jerome Powell said in a statement. 

Tags

Upcoming Events

Salt Lake City, UT

MON - TUES, OCT. 7 - 8, 2023

Blockworks and Bankless in collaboration with buidlbox are excited to announce the second installment of the Permissionless Hackathon – taking place October 7-8 in Salt Lake City, Utah. We’ve partnered with buidlbox to bring together the brightest minds in crypto for […]

Salt Lake City, UT

WED - FRI, OCTOBER 9 - 11, 2024

Pack your bags, anon — we’re heading west! Join us in the beautiful Salt Lake City for the third installment of Permissionless. Come for the alpha, stay for the fresh air. Permissionless III promises unforgettable panels, killer networking opportunities, and mountains […]

recent research

Research Report Cover Vertex.jpg

Research

The proliferation of new perp DEXs has led to fragmented liquidity across various DEXs and chains. Vertex, known for its vertically-integrated DEX that includes spot, perpetual, and integrated money markets, is now tackling cross-chain liquidity fragmentation through horizontal integration with the launch of new Edge instances. Vertex's integrated offerings and cross-margined account structure amplify the benefits of new instances: native cross-chain spot trading, optimized cross-chain basis trading, consistent interest rates, reduced bridging friction, and more.

article-image

Partnering with EtherFi and Angle, the fully on-chain perp DEX features bespoke collateral

article-image

Sponsored

Gavin Wood introduced the next evolutionary step for the Polkadot network: the Join-Accumulate Machine, or JAM

article-image

The side events were the places to be at Consensus 2024, according to attendees

article-image

Also, who’s come out swinging in the spot ether ETF fee war — and who could undercut them

article-image

I know it is not in their nature, but US regulators could learn a lot by researching the digital asset frameworks that overseas regulators have already gotten right

article-image

Also, the ETF hype train can count out at least one member