Stakeholder buy-in, clear policy objectives among preconditions for a digital dollar, Fed analysts say


A new paper published by the Federal Reserve on Wednesday lays out some of the preconditions by which the U.S. central bank might consider launching a digitized version of the dollar.

The listed preconditions are perhaps unsurprising;  the paper's authors Jess Cheng, Angela Lawson, and Paul Wong highlighted "clear policy objectives, broad stakeholder support, strong legal framework, robust technology, and market readiness" as "high-level environmental preconditions that support a general-purpose CBDC in the United States."

The trio stressed that "[t]hese areas and elements are not exhaustive because many systems, tools, processes, and structures will need to be in place for a CBDC." However, they offer a window into where the Fed's internal lines of inquiry are pointing on the question of a digital dollar -- all the more relevant given that, per Fed chair Jerome Powell, the Fed to "engage with the public pretty actively" on the subject of a central bank digital currency (CBDC).

Indeed, the paper is positioned as a jumping-off point for further discussion rather than a definitive bellwether for future Fed action.

"For example, engaging with a broad array of stakeholders and monitoring market readiness could inform clear policy objectives and vice versa. This paper does not attempt to prescribe how to address these preconditions; it aims to spark further inquiry," the authors note.

Among other areas, the paper echoes a comment from Powell about whether the legal framework by which the Federal Reserve operates may need to be altered to account for the creation of a CBDC.

As authors write: "Consideration would need to be given as to whether additional amendments to the [Federal Reserve Act] would be required related to the issuance of a general-purpose CBDC."

The section on stakeholder support is also notable for its breadth, with the paper highlighting how a broad range of public and private-sector participants would be impacted -- and how a successful CBDC might require a degree of buy-in. That said, recent comments from payments firms like PayPal and Mastercard suggest that the positioning for a Fed-backed CBDC may already be happening in the private sector.

Ultimately, the authors conclude that a significant amount of work remains before the Fed decides whether -- and how -- it might move forward on a CBDC.

"Issuing a CBDC in the United States would not be an easy task. A number of foundational elements would be required," the authors write.

Read the full Fed paper here.

Trending Stories

Get Your Crypto
Daily Brief

Delivered daily, straight to your inbox.

Will Sanctions Drive Russia into the Arms of Cryptocurrencies?

From the removal of many Russian banks from SWIFT to a seemingly constant flow of new sanctions, Russia’s invasion of Ukraine has left many to wonder: Is the country likely to lurch towards cryptocurrencies? And if so, what does this mean for businesses that are holding and/or using crypto? Crypto and sanctions evasion Although crypto […]
Read Full Story
Sponsored Post

Layer-2 Scaling Solutions: A Framework for Comparison - Commissioned by Polygon

Ethereum had a breakout year in 2021. It’s native asset, ETH’s, market capitalization surpassed $500 billion for the first time. Its network facilitated upwards of $7 trillion value transfer. Non-fungible tokens (NFTs) emerged as another “killer application” that have put its technology on the global stage and caught the attention of the masses.
Read Full Story
May 5, 2022, 3:17PM UTC