Fed issues ‘first step’ paper on CBDCs

(Jan. 21, 2022) Pros and cons of a U.S. central bank digital currency (CBDC) are examined in a discussion paper released by the Federal Reserve Thursday, the agency said, which also seeks public comment in four months.

The Fed described the paper as a “first step in a discussion of whether and how a CBDC could improve the safe and effective domestic payments system.” The paper takes no policy position, the Fed asserted.

The paper addresses, according to the agency, several issues including the state of the domestic payments system and different types of digital payment methods and assets that have emerged in recent years, including stablecoins and other cryptocurrencies.

The paper also examines the potential benefits and risks of a CBDC, and identifies specific policy considerations, the Fed said. Among the considerations: could a CBDC negatively or positively affect financial stability; would it adversely affect the financial sector differently from stablecoins or other nonbank money; should CBDC be legal tender; should it pay interest; what types of firms should serve as intermediaries for CBDCs, and what should be the role and regulatory structure for the intermediaries.

“Other key policy considerations include how to preserve the privacy of citizens and maintain the ability to combat illicit finance,” the Fed said.

Comments will be due in 120 days (four months), the Fed said.


Federal Reserve Board releases discussion paper that examines pros and cons of a potential U.S. central bank digital currency (CBDC)