The US Federal Reserve (Fed) has released its digital dollar whitepaper, and is seeking answers to 22 questions related to its central bank digital currency (CBDC) project from a wide range of stakeholders.
The Fed will move toward developing a CBDC only in the case that research “points to benefits for households, businesses, and the economy overall that exceed the downside risks, and indicates that CBDC is superior to alternative methods,” the American central bank said in the report.
It added that the Fed would pursue a CBDC only “in the context of broad public and cross-governmental support.”
At the same time, the Fed recognizes that a CBDC could potentially offer a wide array of benefits to the US economy. As examples, the bank said its digital currency could provide households and businesses a convenient form of central bank money, give entrepreneurs a platform on which to create new financial products and services, support faster and cheaper payments, including cross-border payments, as well as expand consumer access to the financial system.
The digital dollar could also pose certain risks, they said, raising questions on how it could affect the financial-sector market structure, credit’s cost and availability, the financial system’s safety and stability, and the efficacy of the bank’s monetary policy.
The Fed said that it welcomed comments submitted by all stakeholders on the shared list of questions. It also intends to “conduct targeted outreach and convene public forums to foster a broad dialogue about CBDC.”
The central bank is awaiting answers to its questions by May 20, and stakeholders can submit their feedback through the available form. It is not a requirement to answer all of the included questions, and answers are limited to 5,000 characters per question.
The form comprises questions about the potential benefits, policy considerations and risks related to the CBDC project, its impact on financial inclusion, the Fed’s monetary policy, consumer privacy, the US financial stability, its influence on the financial sector, its broader international impact, and the desired CBDC design, among others.
Below is a list of featured questions.
CBDC Benefits, Risks, and Policy Considerations
- What additional potential benefits, policy considerations, or risks of a CBDC may exist that have not been raised in this paper?
- Could some or all of the potential benefits of a CBDC be better achieved in a different way?
- Could a CBDC affect financial inclusion? Would the net effect be positive or negative for inclusion?
- How might a US CBDC affect the Federal Reserve’s ability to effectively implement monetary policy in the pursuit of its maximum-employment and price-stability goals?
- How could a CBDC affect financial stability? Would the net effect be positive or negative for stability?
- Could a CBDC adversely affect the financial sector? How might a CBDC affect the financial sector differently from stablecoins or other nonbank money?
- What tools could be considered to mitigate any adverse impact of CBDC on the financial sector? Would some of these tools diminish the potential benefits of a CBDC?
- If cash usage declines, is it important to preserve the general public’s access to a form of central bank money that can be used widely for payments?
- How might domestic and cross-border digital payments evolve in the absence of a US CBDC?
- How should decisions by other large economy nations to issue CBDCs influence the decision whether the United States should do so?
- Are there additional ways to manage potential risks associated with CBDC that were not raised in this paper?
- How could a CBDC provide privacy to consumers without providing complete anonymity and facilitating illicit financial activity?
- How could a CBDC be designed to foster operational and cyber resiliency? What operational or cyber risks might be unavoidable?
- Should a CBDC be legal tender?
- Should a CBDC pay interest? If so, why and how? If not, why not?
- Should the amount of CBDC held by a single end-user be subject to quantity limits?
- What types of firms should serve as intermediaries for CBDC? What should be the role and regulatory structure for these intermediaries?
- Should a CBDC have “offline” capabilities? If so, how might that be achieved?
- Should a CBDC be designed to maximize ease of use and acceptance at the point of sale? If so, how?
- How could a CBDC be designed to achieve transferability across multiple payment platforms? Would new technology or technical standards be needed?
- How might future technological innovations affect design and policy choices related to CBDC?
- Are there additional design principles that should be considered? Are there tradeoffs around any of the identified design principles, especially in trying to achieve the potential benefits of a CBDC?
The US has a long history of struggle and contemplation about its own CBDC. For instance, back in 2020, the Democratic party shared two lengthy draft bills containing the term “digital dollar,” defined in a similar manner. But very soon, reports appeared that the “digital dollar” has been removed from the following version of a bill.