The Fed’s working paper explores the pros and cons of central bank digital currency
The Federal Reserve Board has released a discussion paper outlining the potential benefits, risks, and policy considerations for a US central bank digital currency.
the paper titled “Money and Payments: The US Dollar in the Age of Digital Transformation” includes a discussion of existing forms of money, the current state of the US payments system, and the challenges facing the system and the digital assets that have appeared in recent years, such as stablecoins and other cryptocurrencies.
The document describes the CBDC “as a digital liability of the Federal Reserve that is widely available to the general public” and examines the potential of the CBDC to meet future demands and needs for payment services, improve cross-border payments and preserve the international role. of the US dollar.
The paper also analyzes how a CBDC could alter the structure of the US financial system, affecting the implementation of monetary policy. Other policy issues raised in the report are consumer privacy and data protection, financial crime prevention, operational resilience and cybersecurity.
“We look forward to engaging with the public, elected officials, and a wide range of stakeholders as we consider the positives and negatives of a central bank digital currency in the United States,” the Reserve Chairman said. Federal, Jerome Powell.
The council is asking the public to submit answers to a list of 22 questions as part of its work evaluating a potential CBDC. Responses are expected by May 20.
The document, which market watchers have been anticipating since May 2021, adds significant uncertainty to the cryptocurrency market for several reasons. More importantly, the document hints that the Fed could compete with crypto in the future with a central bank digital currency.
Competition and Fed regulation are now impacting a market that since its inception has not been regulated and has not competed with the Federal Reserve Bank. Another significant concern regarding the crypto market is that the Fed is considering regulating the market.
The crypto market has been significantly impacted by government announcements in the past. Specifically, China has policies in place to severely restrict crypto and cryptomining in the country and has already rolled out its CBDC.
Russia is now moving in the same direction and creating uncertainty in the market. This week, the Russian central bank’s announcement of its digital currency restriction plans had less of an impact than what had been realized from China’s announcement earlier. Indeed, they control about 50% of global bitcoin mining at the time of China’s announcement. Chinese restrictions have resulted in the distribution of mining operations around the world, limiting any particular comfort on the country’s ability to influence or control bitcoin macro-mining. The share of bitcoin mining in Russia is estimated at around 10%.
These developments come as sustainability is gaining increasing attention from the global community due to the substantial electricity consumption required to operate bitcoin and crypto networks globally. Even the richest man in the world, Elon Musk, once weighed in on this issue, creating an impact in the crypto markets at the time.
Parties concerned about the potential impacts of a CBDC on market activity and national security will want to attend the upcoming Potomac Officers Club forum. Click on the banner to learn more about this timely event.
National Cyber Director Chris Inglis will headline the event to provide insight into the national regulatory plan as the electronic form of money seeks broader relevance in the global financial system. The event will have a fireside chat session with Juan Zarate, Global Co-Manager and Chief Strategy Officer at K2 Integrity; and Michael Saylor, CEO of a software company MicroStrategy and an advocate for “Bitcoin Standard”.
Register now to join the forum on January 27 and have the opportunity to learn more about trends related to digital currencies.