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It talks about the pros and cons of a digital currency.
Photo illustration by Budrul Chukrut/SOPA Images.
A digital dollar backed by the US government might lead to faster money transfers and be more accessible than the current banking system, according to a new paper from the Federal Reserve.
The paper is meant to act as the first step in a discussion, and doesn't advocate for creating a "central bank digital currency" The creation of a digital dollar would change the way the government interacts with our finances. The Fed's ability to influence the financial system could be affected by making commercial banks less attractive to consumers. Comments on anything the paper may have missed are now being invited by the Fed.
The US is considering entering the space, but there are many other countries and tech firms working in it.
At a time when around 90 other countries are considering their own digital currencies, the paper is a step towards the creation of a digital dollar. The European Central Bank is looking into the creation of a digital euro, while China is testing a digital yuan. Stable coins, some of which tie their value to the US dollar, have been rising in prominence.
The paper says that the government is looking to keep supporting the U.S. dollar. The government could make it easier for other companies to design systems compatible with the US by doing its research in public.
Related.
The US Treasury thinks stable coins should be regulated like banks.
Some of the benefits of cash and digital money could be combined with a digital currency from the central bank.
It is easy to transfer businesses and people across borders.
People without bank accounts may have difficulties opening accounts at private financial institutions.
It is less likely that the US government will fail than it is that banks will fail.
Depending on the design of the digital currency, it could change the role of the government in our financial lives.
The government would have to navigate the market's reaction to the US taking over a role traditionally served by commercial banks. It would require citizens to trust the government with their financial information, though the paper does not say how this would be mitigated.
There is a digital currency that doesn't have to be based on technology. In its paper, the Fed makes clear that no specific design or technology has been proposed yet, and that it will continue to explore a wide range of design options.
According to the paper, if the central bank were to create a digital currency, it would have to be privacy-protected, intermediated, widely transferable, and identity-verified. The reserve is experimenting with a variety of methods to make a currency.
The paper is worth a read if you are interested in the future of money. If you have expertise or strong opinions about it, you will have plenty of room to express them.
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