The Central Bank of the United States, the Federal Reserve, has released a discussion paper examining the advantages and disadvantages of introducing a digital currency for the US Central Bank (CBDC).
This is the Fed’s first conversation with the general public to determine if and how a digital version of the dollar will benefit the domestic financial system.
Pros and Cons:
While many countries, led by China, are racing to issue their own central bank digital currencies and implement them in its monetary network, the United States is in no hurry.
More than a year ago, Federal Reserve Chairman Jerome Powell asserted that the world’s leading economy would first study the matter carefully and well before making any decision.
In a recent report, the Federal Reserve outlined the main pros and cons of such a financial product.
where stated About it, Powell said:
We look forward to engaging with the public, elected representatives, and a wide range of stakeholders as we study the pros and cons of a US central bank digital currency.
The financial institution noted that consumers and businesses have long held and transferred money in digital forms, including bank accounts or online transactions.
As such, a potential central bank digital currency could continue this trend and provide a secure digital payment option for households and businesses.
In addition, CBDC transactions can lead to faster settlement opportunities between countries.
On the negative side, the digital version of the dollar can work against people’s privacy as the government will control this monetary product.
It may also not be beneficial to America’s financial stability and does not offer or compete with the current means of payment.
Last year, Powell argued that a major advantage of a digital dollar could be the ability to replace cryptocurrencies, including stablecoins.
But earlier this month, he changed his mind and stated that central bank digital currencies and stablecoins can coexist.
Chinese CBDC will not work in the US:
In April 2021, the Federal Reserve Chairman argued that the United States should not copy the Chinese model of a central bank digital currency.
According to him, the two economic superpowers are completely different and require distinct approaches. His statement at the time stated the following:
The currency that is used in China is not the currency that will work here.
It’s a way to really let the government know every single payment is being used.
The US White House plans to issue executive orders on cryptocurrencies
Huobi allocates $100 million to facilitate adoption of Metaverse technology