Finally, Federal Reserve takes a plunge towards issuing e-dollar..

It has been a mystery all this while that Federal Reserve has been asleep while so many central banks are talking about CBDC. Infact, likes of China and France are already looking to introduce CBDC really quickly.

Lael Brainard in a speech yday said Fed has not been sleeping and is working on CBDC:

Digital currencies, including central bank digital currencies (CBDCs), present opportunities but also risks associated with privacy, illicit activity, and financial stability. The introduction of Bitcoin and the subsequent emergence of stablecoins with potentially global reach, such as Facebook’s Libra, have raised fundamental questions about legal and regulatory safeguards, financial stability, and the role of currency in society. This prospect has intensified calls for CBDCs to maintain the sovereign currency as the anchor of the nation’s payment systems. Moreover, China has moved ahead rapidly on its version of a CBDC.

With these important issues in mind, the Federal Reserve is active in conducting research and experimentation related to distributed ledger technologies and the potential use cases for digital currencies. Given the dollar’s important role, it is essential that the Federal Reserve remain on the frontier of research and policy development regarding CBDCs. As part of this research, central banks are exploring the potential of innovative technologies to offer a digital equivalent of cash. Like other central banks, we are continuing to assess the opportunities and challenges of, as well as the use cases for, a CBDC, as a complement to cash and other payments options. There continues to be strong demand for U.S. currency, and we remain committed to ensuring the public has access to a range of payments options.

We have been conducting in-house experiments for the last few years, through means that include the Board’s Technology Lab, which has been building and testing a range of distributed ledger platforms to understand their potential opportunity and risk. This multidisciplinary team, with application developers from the Federal Reserve Banks of Cleveland, Dallas, and New York, supports a policy team at the Board that is studying the implications of digital currencies on the payments ecosystem, monetary policy, financial stability, banking and finance, and consumer protection.

To enhance the Federal Reserve’s understanding of digital currencies, the Federal Reserve Bank of Boston is collaborating with researchers at the Massachusetts Institute of Technology in a multiyear effort to build and test a hypothetical digital currency oriented to central bank uses. The research project will explore the use of existing and new technologies as needed. Lessons from this collaboration will be published, and any codebase that is developed through this effort will be offered as open-source software for anyone to use for experimentation.

The objectives of our research and experimentation across the Federal Reserve System are to assess the safety and efficiency of digital currency systems, to inform our understanding of private-sector arrangements, and to give us hands-on experience to understand the opportunities and limitations of possible technologies for digital forms of central bank money. These efforts are intended to ensure that we fully understand the potential as well as the associated risks and possible unintended consequences that new technologies present in the payments arena.

Separately, a significant policy process would be required to consider the issuance of a CBDC, along with extensive deliberations and engagement with other parts of the federal government and a broad set of other stakeholders. There are also important legal considerations. It is important to understand how the existing provisions of the Federal Reserve Act with regard to currency issuance apply to a CBDC and whether a CBDC would have legal tender status, depending on the design. The Federal Reserve has not made a decision whether to undertake such a significant policy process, as we are taking the time and effort to understand the significant implications of digital currencies and CBDCs around the globe.

Here is Boston Fed press release and here is MIT’s Digital Currency Initiative.

Fed may have joined the race late, but given the technology prowess the country has, it could soon leap ahead of others.

Brainard adds that Fed is collaborating with other central banks:

In addition to these experiments, the Federal Reserve continues to collaborate with and learn from other central banks. We are participating in the CBDC coalition of central banks. While each country will make decisions on whether to issue and how to design a CBDC based on its own domestic legal framework and financial and economic context, we benefit from collaboration on CBDC research. Sharing lessons learned, jointly conducting experiments, and bringing diverse expertise to bear helps us make progress in developing potential approaches to address challenging hurdles, such as threats to cybersecurity, counterfeiting and fraud, and anti-money laundering, to name a few, as well as on shared goals, such as increasing the ease and efficiency of cross-border transactions. Since financial and payments systems share extensive cross-border linkages, a poorly designed CBDC issued in one jurisdiction could create financial stability issues in another jurisdiction. A cyberattack on a CBDC arrangement in one jurisdiction could create domestic financial stress, which could, in turn, affect linked economies or have broader effects if confidence in certain technologies or payment mechanisms is eroded.

The race has become exciting…

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