Central Bank Digital Currency Discussion

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On January 20, 2022, the Federal Reserve Board released a discussion paper on the potential for a US central bank digital currency, or CBDC. Titled “Money and Payments: The US Dollar in the Age of Digital Transformation,” the article provides additional insight into the public policy concerns guiding the Fed as it deliberates whether to adopt a US CBDC. .

For the purposes of the document, the Fed defines a CBDC as “a digital liability of a central bank that is widely available to the general public.” In this regard, the paper notes that a CBDC is conceptually analogous to a digital form of paper money. The Fed is careful to note that the document is not intended to advance any specific policy outcome, nor to signal that the Federal Reserve will be making any imminent decisions on whether to issue a US CBDC. The document also makes it clear that the Federal Reserve does not intend to proceed with issuing a CBDC without clear support from the executive branch and Congress, ideally in the form of specific enabling legislation. .

This article begins with an overview of existing forms of currency and the American payment system. He then moves on to a summary of some of the various digital assets that have emerged in recent years, including stablecoins and other cryptocurrencies. The document observes that cryptocurrencies have not been widely adopted as a means of payment in the United States, that they remain subject to extreme price volatility, are difficult to use without service providers and have severe limitations on transaction throughput. The Fed also says that many cryptocurrencies also have a large energy footprint and make consumers vulnerable to loss, theft, and fraud.

The document then turns more specifically to the CBDC, starting with hypothetical use cases before moving on to potential benefits and risks. In terms of the benefits of a U.S. CBDC, the Fed identifies facilitating the ability to meet future payment service needs and demands, improving cross-border payments, supporting the international role of the U.S. dollar, promoting financial inclusion and expanding public access to a safe central bank. money. The main risks of a US CBDC include the security and stability of the financial system, reduced effectiveness of monetary policy implementation, cybersecurity, potential privacy and data protection issues, and prevention financial crimes. Ideally, the document believes that a U.S. CBDC would be privacy-protected, intermediated, easily transferable, and identity-verified.

The discussion paper also sets out a series of policy objectives for a US CBDC, including that it should:

  • deliver benefits to households, businesses and the broader economy that outweigh costs and risks;

  • produce these benefits more efficiently than alternative methods;

  • complement, rather than replace, current forms of money and methods of delivering financial services;

  • protect consumer privacy;

  • protect against criminal activity; and

  • enjoy broad support from key stakeholders.

The document concludes with an extensive request for comment on a range of topics, including the benefits, risks, design, and functionality of a hypothetical US CBDC. The Fed intends to accept public comments for 120 days.

Copyright © 2022, Hunter Andrews Kurth LLP. All rights reserved.National Law Review, Volume XII, Number 25

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