The Federal Reserve has released a long-awaited paper weighing the pros and cons of creating a central bank digital currency (CBDC), a digital form of cash in your pocket.
The paper released on Thursday cautiously weighed the pros and cons of a digital dollar, and did not take a position on whether the central bank should pursue such a project.
A CBDC would differ in some key ways from the online and digital payments that millions of Americans already conduct. Those transactions are funneled through and between banks, which wouldn't be necessary with a digital dollar.
Essentially, a CBDC would be a digital token with a direct claim on the central bank, in the same way that physical dollars are all 'Federal Reserve Notes' held by the bearer.
Last year, China began testing its own CBDC, known as the digital RMB and e-CNY, which aims to be cheaper and faster than other forms of payment, and allows transactions to take place between two offline devices.
It raised concerns that the US needs to consider similar moves in order to remain the world's reserve currency.
The Federal Reserve has released a long-awaited paper weighing the pros and cons of creating a central bank digital currency. Fed Chair Jerome Powell is seen above
Today, Federal Reserve notes (cash) are the only type of central bank money available to the general public. A CBDC would be a digital call on the central bank available to the public
Though the concept of CBDCs was inspired by cryptocurrencies such as Bitcoin, there are key differences, and it is unlikely that a digital dollar would use distributed ledger technology such as blockchain.
The Fed paper tiptoes around a subject that has sparked hot debate inside the Fed's top ranks, even as other central banks across the globe are exploring the adoption of digital currencies.
The Fed´s paper stressed that no final decisions about a US digital currency have been reached.
But it suggested that a digital currency that 'would best serve the needs' of the nation would follow an 'intermediated model' under which banks or payment firms would create accounts or digital wallets.
The Fed said it would not proceed with creating a CBDC 'without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.'
'While a CBDC could provide a safe, digital payment option for households and businesses as the payments system continues to evolve, and may result in faster payment options between countries, there may also be downsides,' Fed officials