Finally, the Fed also talked about issuing digital currency
This is seen as an attempt by the Fed to catch up with global financial innovation. demand and maintain superpower status of USD…
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The US Federal Reserve (Fed) has just opened a public discussion and first public comment on the issuance of a central bank digital currency (CBDC). This is seen as an attempt by the Fed to catch up with global financial innovation and maintain the superpower status of USD.
According to the Financial Times, after a long wait in the market, on January 20, the Fed finally published a discussion document under which the discussion is forecasted to be. “hot” at the Fed in the coming months. However, the Fed also added that it is not clear at this time how this discussion will turn out.
“We look forward to hearing from you. the public and stakeholders as we learn about the positives and negatives of a CBDC in the US,” Fed Chairman Jerome Powell said in a statement.
In recent years, the Fed has balked at the idea of issuing CBDCs, saying that it will only issue digital currency if the benefits outweigh the negatives. Meanwhile, the Central Bank of China (PBOC) has gone far ahead when it comes to testing the digital renminbi. The European Central Bank (ECB) is also making strides into this technology.
Previously, Mr. Powell said that CBDCs only “play a complementary role, not a replacement. alternative to cash and existing digital forms of USD in the private sector, such as deposits in commercial banks”.
“The Fed has finally kicked off a theme that central banks cannot avoid as they seek to ensure monetary and political stability amid new innovations. on financial technology, including the rapid shift to digital payments, which are reshaping financial markets and financial institutions,” said Professor Eswar Prasad of the University of Cornell statement.
The Fed’s CBDC public consultation process is expected to last 120 days. The Fed has not yet made a decision on whether to issue a CBDC, and if so, how the digital currency will be structured.
“A CBDC could provide a secure digital payment option for households and businesses as payment systems continue to evolve, and could lead to faster payment options across countries. However, such a digital currency still has its limitations,” the Fed said. “The issue includes how to ensure that a CBDC will preserve monetary and financial stability, as well as complement existing payment methods. Other important issues to consider include citizen security and staying strong against illicit financial activities.”
Chief economist Jan Hatzius of Goldman Sachs said that it is unlikely that the Fed will act quickly to issue a CBDC if this option is selected. “The Fed will act cautiously. They will not be in a hurry to replace the financial intermediation system with banks at the heart,” said Mr. Hatzius.
The Fed is well aware of the risks of a CBDC and acknowledges that Such a digital currency could “fundamentally change the structure of the American financial system.” According to the Fed, the cost of capital for banks could increase if the amount of deposits in the bank decreases when a digital interest rate digital dollar is used. popular use. This will lead to an increase in credit interest rates for businesses and households.
However, the Fed emphasized that this problem can be overcome through announcements. CBDC designs, such as limiting the number of CBDCs an organization or individual can hold. The Fed also says the best way to meet America’s needs is for the private sector to provide digital wallets and accounts to facilitate the management of all associated holdings and payments. Commercial banks and non-banking financial service providers that are regulated by the authorities can take on this role.
“Individuals Individuals, businesses, and governments can use CBDCs to make basic purchases of goods and services or pay bills. Governments can also use CBDCs to collect taxes or directly pay benefits to citizens,” said the Fed.
The Fed believes that inaction also leads to adverse consequences. If a digital currency is not developed, the US could lose its status as a superpower in the global market – Fed documents warn.
“The important thing is that consider the effect of a situation in the future where many other countries and monetary unions may launch their CBDCs,” the Fed said. “There has been some argument that if CBDCs are more attractive than existing forms of
USD, the role of USD could decline globally, and a US CBDC could help preserve the international role of coin USD”.
Anhui
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