A January white paper from the Federal Reserve examines the benefits and risks of a central bank digital currency (CBDC), one that would be issued by the Fed.
The paper does not take a position on the merits of a central bank digital currency, nor does it signal that the Fed will soon decide whether to issue one. The paper includes a request for public input, which you can offer here.
Among the potential benefits of a CBDC, the paper notes that it could:
- offer households and businesses a convenient, safe, and liquid electronic form of central bank money.
- give entrepreneurs a platform on which to create financial products and services.
- support faster and cheaper payments.
- expand consumer access to the financial system.
On the other hand, a CBDC could also pose risk and raise thorny policy questions, such as how a CBDC might affect financial-sector market structure. The paper points out that a CBDC could alter the roles and responsibilities of both commercial financial institutions and the central bank. A CBDC might also affect the cost and availability of credit, financial stability, and the efficiency of monetary policy in unknown ways.
Charles Davidson
Staff writer for Economy Matters