On January 20, 2022, the Federal Reserve Board released a 40-page discussion paper, Money and Payments: The U.S. Dollar in the Age of Digital Transformation, that examines the pros and cons of a potential U.S. central bank digital currency (CBDC). It invites comment from the public and is the first step in a discussion of whether and how a CBDC could improve the safe and effective domestic payments system. The paper does not favor any policy outcome.
The paper summarizes the current state of the domestic payments system and discusses the different types of digital payment methods and assets that have emerged in recent years, including stablecoins and other cryptocurrencies. It concludes by examining the potential benefits and risks of a CBDC, and identifies specific policy considerations.
While a CBDC could provide a safe, digital payment option for households and businesses as the payments system continues to evolve, and may result in faster payment options between countries, there may also be downsides. They include how to ensure a CBDC would preserve monetary and financial stability as well as complement existing means of payment. Other key policy considerations include how to preserve the privacy of citizens and maintain the ability to combat illicit finance. The paper discusses these and other factors in more detail.
To fully evaluate a potential CBDC, the Board’s paper asks for public comment on more than 20 questions. Comments will be accepted for 120 days and can be submitted to the Federal Reserve at www.federalreserve.gov/apps/forms/cbdc.