The Federal Reserve Bank of the United States has released a long-awaited research report on central bank digital currencies, often known as CBDCs.
The Federal Reserve concluded that a CBDC might provide people and companies with a “secure, digital payment alternative” as well as “faster payment choices across nations.” A CBDC is a digital asset whose value is determined by the value of a fiat currency—in this example, the United States dollar—issued by a country’s central bank.
However, it noted that central bank digital currencies may have drawbacks, including potential threats to financial stability. Additionally, the establishment of a CBDC will alter the market structure of the financial sector, alter reserve management methods and monetary policies, and have ramifications for privacy and security.
The Federal Reserve’s recently released study is primarily meant to examine the advantages and disadvantages of a digital currency, rather than to take a stance on whether such a currency should be created.
While a central bank digital currency would not necessarily be based on blockchain technology or classified as a cryptocurrency, the document issued today made several references to each technology.
The Federal Reserve indicated that it is experimenting with blockchain-based CBDCs, stating that the Federal Reserve Bank of Boston is collaborating on this endeavour with MIT’s Digital Currency Initiative. It said that The Board’s Technology Lab is investigating distributed ledger technology-based wholesale payments and interbank settlements.
Additionally, it referenced bitcoin and stablecoins as historical advancements in digital payments, but cautioned that a comprehensive treatment of such technologies is “outside the scope of this article.” It then referred readers to a November 2021 study on stablecoins released by the President’s Working Group on Financial Markets, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency.
Months Have Passed Since the Drafting of the Paper
Since May 2021, when chairman Jerome Powell said that the document will be released in the summer of that year, the Federal Reserve’s report has been widely awaited.
The publication of the study was frequently postponed. The paper’s publishing date was pushed back to September in July. Many anticipated the study to be released imminently in October, based on rumours from the Wall Street Journal, but it was once again postponed.
Chairman Jerome Powell said earlier this month that the document would come “within weeks” of the Federal Reserve meeting its objective today.
The article does not imply that the Federal Reserve will create a stablecoin. The agency will next solicit views, and states that it will pursue a CBDC only if the technology has “wide public and cross-governmental support.”
Also Read: Neymar Jr., A Soccer Star, Purchases And Proudly Displays His Bored Ape Yacht Club NFT
Wallets