A few interesting comments from Fed officials about the likelihood of a US CBDC (a Central Bank Digital Currency would be fungible into our daily US dollar).
The supporters and the detractors
- A digital dollar would make transactions easier, give access to banking to those who are currently not covered. It would also facilitate the distribution of financial aid. Fed governor. Lael Brainard is confident that the US Government will eventually come to the table.
- Randal Quarles, supervision Vice-chair and a governor, indicated that the US Dollar is already “highly digitized”. A CBDC would not attract many more people into the financial system.
A central repository
Users would depose their regular dollars directly at the Fed in exchange for digital dollars. This is far from benign:
- In case of a market fright, retail could sell all their stocks and mutual funds to gain safety at the Central Bank. This creates a significant systemic risk.
- The Fed would pay interest directly into the users’ accounts, hence disintermediating the financial markets and the banks entirely.
- It would surely make the monetary policies much more effective…
- … but it could threaten the business and the income of many banks.
- Also the Central bank now has information on every US citizen/resident. That comes with data privacy concerns.
The Fed will be issuing a review and will elicit comments. The Boston Fed, in conjunction with MIT, will issue the feasibility analysis. Jerome Powel is circumspect.
The story continues.
- Navesink International, June 17, 2021: Should Central Banks issue digital currencies?
- Navesink International, July 28, 2021: Bye-bye, bitcoin: It’s time to ban cryptocurrencies
- Credits to Andrew Ackerman at The Wall Street Journal.