The development of an official digital version of the United States dollar might provide Americans with more and faster payment alternatives, but it would also create hazards to financial stability and privacy. In a long-awaited discussion paper released on Thursday, the Federal Reserve stated its position.
A digital currency issued by a central bank would vary in several important ways from the online and digital payments that millions of Americans presently make on a daily basis. Those payments are routed through financial institutions, which would not be necessary if the dollar were digital.
According to PBS NewsHour, despite the fact that no final decisions about a digital currency have been taken, the Federal Reserve’s study stated that it would most likely follow an “intermediated model,” in which banks or payment processors would create accounts or digital wallets on behalf of customers.
Consumers might get digital dollars directly from the Federal Reserve as an alternative to the current system. However, as the report points out, the Federal Reserve is not authorized by law to establish individual accounts.
The report also stated that the Fed’s study comes as other types of digital money expand. Millions possess cryptocurrencies, which are commonly utilized as investments rather than payment methods. But the use of “stablecoins,” sometimes tethered to the dollar, has risen dramatically in the last year, mostly for crypto transactions.
Different Countries Launch their Digital Currency
As reported by Reuters, around 90 countries are considering establishing or starting their own digital currencies. Although a widely utilized digital euro, yuan, or dollar may be years away, the projects have the potential to cause significant disruption to the global financial system.
It was also reported that despite refraining from making policy suggestions, the Federal Reserve did provide some insight into how a digital dollar would operate. It stated, in part, that a digital dollar would “best suit” the needs of the United States if it were to be intermediated through the existing financial system.
Individuals would not be able to open CBDC accounts directly with the Federal Reserve, a strategy supported by some Democrats who believe that a digital currency may benefit the unbanked.
In any case, even if the Fed agrees to issue digital money, it will be years before the digital currency is truly available for use. The release of the report on Thursday marks the beginning of a 120-day public comment period, during which the Federal Reserve will solicit input from the general public.