Like cicadas, buzz about U.S. digital currency grows

(May 28, 2021) Discussion of digital currency and if (or when) the Federal Reserve will begin issuing its own version of the new money was ramped up over the last week following comments by the agency board’s chair and the board member who watches over the nation’s payments system.

First up was Fed Chair Jerome H. (“Jay”) Powell, who last week said the development and enablement of a central bank digital currency (CBDC) for use by the general public is among the technological advances being explored by the Federal Reserve. Further, he revealed, the agency plans to publish a “discussion paper” this summer that will delve into the implications of digital payments – including possibly a U.S.-issued digital currency.

The key focus for the Fed, Powell said, is whether or how a CBDC could improve on what he called the existing “already safe, effective, dynamic, and efficient U.S. domestic payments system” in serving households and businesses. In any event, he said the Fed does not see digital currencies as a replacement for cash and coin – at least for now.

“We think it is important that any potential CBDC could serve as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks,” Powell said. “The design of a CBDC would raise important monetary policy, financial stability, consumer protection, legal, and privacy considerations and will require careful thought and analysis—including input from the public and elected officials.”

This week, Fed Gov. Lael Brainard (who chairs the Fed’s payments committee) said this summer’s paper on digital money will be used to solicit public comment on a range of questions related to the use of the new currency, including payments, financial inclusion, data privacy and information security.

She also said that a digital dollar would be a new type of central bank money issued in digital form for use by the general public. “By introducing safe central bank money that is accessible to households and businesses in digital payments systems, a CBDC would reduce counterparty risk and the associated consumer protection and financial stability risks,” she said. She added that introducing a CBDC may provide an “important foundation” for beneficial innovation and competition in retail payments in the U.S.

Transcript of Chair Powell’s Message on Developments in the U.S. Payments System

Speech by Governor Brainard on private money and central bank money as payments go digital: an update on CBDCs