- The U.S. is taking accelerated steps in its launch of digital currency as the Federal Reserve investigates distributed technologies and how to digitize the dollar.
According to a statement by Federal Reserve Board Governor, Lael Brainard, during the San Francisco’s Innovation Office Hours, the Bank is partnering with several institutions to research the possible effects of launching a central bank digital currency (CBDC).
Touching on various issues in the CBDC research, including the impact of COVID-19, the accelerated efforts with Libra, and also China’s digital RMB, Brainard stated the Federal Reserve is actively researching its digital dollar. She said,
“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.”
The Federal Reserve of Boston has been a close partner with the Massachusetts Institute of Technology in its research efforts on the CBDC over the past years. The teams have been testing the opportunities and risks of implementing a range of distributed ledger technologies and a digital dollar. Brainard further states,
“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.”
Brainard critically notes that any development made will be shared with the public “for anyone to use for experimentation.”
“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 the research project include assessing the overall safety and efficiency of introducing digital currency payments. she said,
“Digital currencies, including central bank digital currencies (CBDCs), present opportunities but also risks associated with privacy, illicit activity, and financial stability.”
“This prospect has intensified calls for CBDCs to maintain the sovereign currency as the anchor of the nation’s payment systems.”
Brainard further singles out the development of Libra; the Facebook backed token, and China’s efforts to launch their digital currencies as the reason for the Fed’s research program. Her comments offer hopes of a possible launch of a digital dollar in the coming days. This view has been echoed by the former CFTC Chairman, Christopher J. Giancarlo on a digital dollar project.
In a supportive tone, the Federal Reserve Bank of New York released a statement on digital currencies stating classifications of these assets are vital as they could be both account-based and token-based. The statement reads,
“The main allure of distinguishing between account-based and token-based is to highlight a defining feature of certain new, emerging forms of digital currency. But if a digital currency can be both token-based and account-based, then the classification loses its power to distinguish between new and existing methods of digital payments meaningfully.”