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Central Banks

Federal Reserve finally releases central bank digital currency report

21 Jan 2022 : 08:13
2 min read
  • The Federal Reserve's long-awaited report on central bank digital currencies was released Thursday
  • the Fed addresses that a CBDC could compete with private money
  • The paper lists a checklist of 22 different items on which it is seeking public feedback

The Federal Reserve’s long-awaited report on central bank digital currencies was released Thursday afternoon.

The Federal Reserve publishes its CBDC report

The paper, which policy observers and members of Congress have long anticipated, represents a significant advance in the Fed’s work on central bank digital currencies. However, the authors emphasize at the outset that the paper’s existence does not presage a final policy move on the part of the Fed. Instead, it is meant to start a conversation.

One area highlighted in the section on the potential benefits of CBDCs offers good insight into one possible motivation for issuing CBDCs: the rise and spread of private digital money. The Fed notes that a CBDC “would offer the general public broad access to digital money that is free from credit risk and liquidity risk. As such, it could provide a safe foundation for private-sector innovations to meet current and future needs and demands for payment services.”

CBDC could compete with “private digital money”

Later in the report, the Fed also addresses that a CBDC could compete with private money like today’s cryptocurrencies. According to the Fed, smaller companies may not be able to issue their own private money. Rather, a US CBDC “could overcome this barrier and allow private-sector innovators to focus on new access services, distribution methods, and related service offerings.” The Fed also noted the role of a CBDC for micropayments, which have long been considered a use case for digital assets.

According to the Fed, some of the services and innovations being developed in the crypto space today could take place in a CBDC-based payments environment of the future. Such offerings would likely come from some major payments companies that have made no secret of their CBDC-related ambitions. These companies include PayPal and Mastercard, which have pursued crypto initiatives. Overall, the paper lists a checklist of 22 different items on which it is seeking public feedback. There will be a 120-day comment period.


About Author

Stan Colenbrander

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Stan is the head of news and podcast host at Cryptonary. He was formerly a member of the Cryptonary Pro community. In early 2021, he decided to drop out of journalism school at university to pursue journalism in real life and make an impact in the crypto space. . His areas of interest include the NFT industry, decentralised finance, and crypto start-ups.

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