US Federal Reserve is Working Actively on Digital Dollar
The Federal Reserve Board, along with several Federal Reserve Banks, are working actively on developing the digital dollar. According to proposed legislation, every American could have an account with the Fed for conducting transactions in the central bank digital currency (CBDC). Loretta J. Mester, the President of the Federal Reserve Bank of Cleveland, made a speech on Wednesday at the 20th Anniversary Chicago Payment Symposium. During the speech, she outlined how the Fed is working on the central bank digital currency (CBDC) for the country. Mester said that the whole scenario with emergency payments due to the coronavirus pandemic had accelerated the work in this space.
She said that the proposed legislation believes every citizen should have an account at the Fed where digital dollars will be deposited as liabilities of the banks and would be used for emergency payments. Messer stated that new payment instruments would be created by other proposals and this digital cash would just be like a physical currency that’s issued by central banks nowadays. The only difference is that it would be in digital form and won’t have the same anonymity as physical currency. Mester elaborated that designs of the digital dollar would enable central banks to issue the CBDC directly into the wallets of the end-users through central-bank-facilitated transfer and redemption services and commercial banks wouldn’t be needed.
She further revealed that issues that would be raised by a central bank digital currency are being researched by the Federal Reserve for quite some time. This indicates that a number of Federal Reserve Banks are also working on the initiative of using a central bank digital currency (CBDC). Techlab is the technology lab owned by the Federal Reserve Board of Governors and it has been building and testing platforms, along with a range of other technologies that’s related to digital currencies and other payment developments.
Employees of a number of Federal Reserve Banks, which include some software developers, are all making a contribution to this effort. Lael Brainard, the Governor of the Federal Reserve Board had previously said that due to the important role of the dollar, the Federal Reserve had to be at the forefront of the research and policy development of CBDCs. As far as individual Federal Reserve Banks are concerned, Mester said that Boston’s Federal Reserve Bank is working with the Massachusetts Institute of Technology (MIT) for experimenting with new and existing technologies that can be used for a digital dollar. This initiative had been introduced in August.
An innovation center has been established by the Federal Reserve Bank in New York with the Bank for International Settlements (BIS) for identifying financial technology and critical trends related to central banks. Mester also emphasized the need for evaluating potential costs, risks, policy issues, and benefits surrounding a digital dollar. She also stressed that the uses and demand of a CBDC had to be assessed to determine whether such a currency would allow for easier and quicker payments during times of emergencies and generally as well.