On January 20th 2022, the US Federal Reserve Board released its initial concept paper for a CBDC, a key innovation for the future of the dollar. It defines a CBDC as a “digital liability of the Federal Reserve that is widely available to the general public” and as such would be “analogous to a digital form of paper money.” The stated benefits of a US CBDC include providing households and businesses directly with a convenient electronic form of central bank money, with adequate levels of liquidity and security mechanisms. It would offer a platform on which to innovate financial products and services, advancing faster and cheaper payments domestically and internationally, and promoting financial inclusion.
On the other hand, a US CBDC also poses risks and policy questions with respect to its impact on the financial market structure, cost and availability of credit, financial system safety and stability, and efficacy of monetary policy.
For a US CBDC implementation to proceed, the benefits must exceed the risks. The Fed’s priorities for a CBDC design would be to ensure privacy protections, an intermediated structure where specialized external parties would address privacy issues regarding financial transaction data, a wide transferability to ensure accessibility, and robust user identity verifications for the purposes of AML/CFT.