The Federal Reserve has come out with a highly anticipated paper on a digital dollar, taking a step in a process that could lead to Congressional action.
The paper, which lays out the pros and cons of a central-bank digital currency, doesn’t appear to taking sides in the debate over whether to establish one. It discusses the benefits of a CBDC, but also notes that it could pose threats to banks and new forms of money such as stablecoins (tokens designed to maintain a fixed $1 value).
By setting the stage for debate, including a request for public comment, however, the Fed could get the ball rolling in Washington. The Fed said it would need Congressional authority to act, which could help build momentum for legislation that would authorize the Fed to start on a design.
The Biden administration also wants debate, at the least, to get under way. “The Treasury Department welcomes the Federal Reserve’s paper which is an important step forward in the public discussion about central bank digital currencies,” a spokesman told Barron’s.
As the Fed sees it, a CBDC would a major digital upgrade to existing formats of the currency. “The introduction of a CBDC would represent a highly significant innovation in American money,” the Fed said in the paper, adding that it’s now “considering how a CBDC might fit into the U.S. money and payments landscape.”
A CBDC would be a liability of the central bank, not a commercial bank, like a deposit in a savings or checking account. It would be widely available to the general public, though it wouldn’t displace cash.