The U.S. central bank has weighed the pros and cons of a digital dollar.
The U.S. Federal Reserve has published a highly-anticipated review paper on central bank digital currencies, also known as CBDCs.
Federal Reserve Weighs Pros and Cons
The Fed has delivered its report on CBDCs to the public after months of anticipation and several delays.
Overall, the Federal Reserve found that a CBDC could offer a “safe, digital payment option” for individuals and businesses, as well as “faster payment options between countries.” A CBDC is a digital asset tied to the value of a fiat currency—in this case, the U.S. dollar—that is issued by a country’s central bank.
However, it also said that central bank digital currencies could have downsides, such as risks to financial stability. The creation of a CBDC would also change the financial sector’s market structure, change reserve management practices and monetary policies, and have implications for privacy and security.
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The Federal Reserve’s newly published paper is largely intended to explore the pros and cons of a digital currency, not to take a position on whether such a currency should be launched.
Crypto, Blockchain Mentioned Several Times
Though a central bank digital currency would not necessarily be powered by blockchain or be considered a cryptocurrency, the paper published today mentioned each technology repeatedly.
The Federal Reserve mentioned that it is involved with experiments that use blockchain-based CBDCs, noting that the Federal Reserve Bank of Boston is working with MIT’s Digital Currency Initiative on this effort. It added that The Board’s Technology Lab is researching wholesale payments and interbank settlements powered by distributed ledger technology.
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It also mentioned cryptocurrency and stablecoins as historical developments in digital payments, but noted that a full discussion of those technologies is “outside the scope of this paper.” It went on to refer readers to another report on stablecoins published by the President’s Working Group on Financial Markets, the FDIC, and the OCC in November 2021.
Paper Has Been In the Works for Months
The Federal Reserve’s paper has been eagerly anticipated since May 2021, when chairman Jerome Powell said that the paper would be published in the summer of that year.
The paper’s publication was repeatedly delayed. In July, the paper’s publication was postponed to September. In October, many expected that the paper would be published imminently based on reports from the Wall Street Journal, but its publication was delayed yet again.
This month, chairman Jerome Powell said that the paper would arrive “within weeks” before the Federal Reserve fulfilled its goal today.
The paper does not necessarily mean that the Federal Reserve will develop a stablecoin. Next, the regulator will seek comments, and it says that it will only pursue a CBDC if there is “broad public and cross-governmental support” for the technology. 
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