The Federal Reserve is moving forward in its efforts to develop its own digital currency, announcing Thursday it will release a research paper this summer that explores the move further.
Though the central bank did not set any specific plans on the currency, Chairman Jerome Powell cited the progress of payments technology and said the Fed has been “carefully monitoring and adapting” to those innovations.
“The effective functioning of our economy requires that people have faith and confidence not only in the dollar, but also in the payment networks, banks, and other payment service providers that allow money to flow on a daily basis,” Powell said in a video message accompanying the announcement.
Fed officials have emphasized the importance of getting the issuance of a central bank digital currency right rather than participating in a race with its global peers.
However, the moves of multiple countries, most prominently China, in the central bank digital currency (CBDC) space has intensified talk about how aggressively the Fed should move. China’s progress has stirred worries that it could undermine the dollar’s position as the global reserve currency.
“It’s going to take some time to do it right,” said David Treat, leader of the blockchain practice for Accenture, which is leading public-private research initiative into CBDCs. “We’re talking about a four- or five-year journey to real availability and usage and a lot of learning that has to happen between now and then to make sure how it’s implemented fits with each country’s social values and laws.”
Looking at options
Powell referenced the growing popularity of digital currencies like bitcoin, though he said they remain inefficient payment mechanisms. Stablecoins, which are tied to specific currencies, offer other advantages.
“Technological advances also offer new possibilities to central banks — including the Fed,” Powell said. “While various structures and technologies might be used, a CBDC could be designed for use by the general public.”
The Fed has been studying payments systems for several years and plans to release a product called FedNow, likely in 2023, that would address many of the issues regarding the need for immediacy in transactions as well as the plight of the unbanked.
However, digital coins represent another avenue that central banks are pursuing to make payments more efficient. There remain multiple issues around implementation, though, that have held back the efforts.
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