US Federal Reserve Lists Pros and Cons of CBDC

The US Federal Reserve recently released a discussion paper on the advantages and disadvantages of launching a potential US central bank-issued digital currency (CBDC). Reports show that this is the first time the US Fed is consulting the general public on whether the digital dollar could benefit the financial system or not.

While many countries are jostling to issue a CBDC, with China miles ahead of the game, the US appears to be in no hurry to launch theirs. Over a year ago, Fed chair Jerome Powell asserted that the US would first “carefully and thoughtfully” pore over the topic before taking any actions.

US Federal Reserve Reveals Plans to Dialogue with Public on CBDC

In a report detailing what the Fed considered to be the most significant advantages and disadvantages of a CBDC, Fed Chair Powell noted:

“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.”

The central bank noted that end-users and businesses have long stored and transferred money in digital forms, including bank accounts or online transactions. That said, a potential digital dollar could sustain the trend and maintain a “safe, digital payment option for households and businesses.” More importantly, CBDC transactions could foster better cross-border settlement opportunities between nations.

However, many have argued that a digital dollar could infringe on the people’s privacy as the government would control the financial tool. Also, others have argued that CBDCs might not have the proposed benefits many believe they would have on the American financial scape and that the payments solution would remain unaffected.

In 2021, Jerome Powell asserted that the benefits of a CBDC could replace cryptocurrencies, including stablecoins. However, the central banker made a U-turn on that statement and noted that CBDCs and stablecoins could exist together.