Central banks around the world, including the Federal Reserve, are exploring the potential for central bank digital currency (CBDC), a digital liability of a central bank that is widely available to the general public.
While the Fed has made no decisions on whether to pursue or implement a CBDC, the Fed is examining CBDC to understand whether and how a CBDC could improve the safe and efficient U.S. payment system. While there is potential for CBDC to strengthen financial inclusion, support cross-border payments improvement (Off-site) and more, there are also potential risks, such as ensuring CBDC would preserve monetary and financial stability. Therefore, ongoing public consultation and research is needed. Read on to learn more about the Fed’s ongoing initiatives in this space.
Report on central bank digital currencies
The Federal Reserve Board is seeking public comments through May 20, 2022 on its recently released paper, Money and Payments: The U.S. Dollar in the Age of Digital Transformation (PDF) (Off-site). The paper examines the pros and cons of a potential U.S. CBDC and does not favor any policy outcome. The current state of the U.S. payment system and various digital assets that have emerged in recent years are also outlined in the paper, including stablecoins and other cryptocurrencies.
The Federal Reserve Bank of Boston and the Massachusetts Institute of Technology’s Digital Currency Initiative are collaborating on Project Hamilton, a multiyear research project to understand the technical challenges of CBDC. This effort focuses on technological experimentation and does not aim to create a usable CBDC for the United States. The newly published Phase 1 research (Off-site) outlines technological research and open-source code resulting from the development of a theoretical transaction processor.
In the second phase of this partnership, Project Hamilton will explore alternative design options to determine the technical and performance tradeoffs associated with various designs.
In addition to further research, the Federal Reserve will continue expanding its public dialogue to learn more from stakeholders and collect a wide range of feedback. Check back for more information as CBDC initiatives across the Federal Reserve System continue to advance the conversation surrounding payments innovation.