US Fed economists study the “intrinsic” worth drivers of CBDCs
The US Federal Reserve expanded its research on central bank digital currencies (CBDCs) in a new review posted on its website on Monday.
In a report entitled "Central Bank Digital Currency: A Literature Review," Fed economists Francesca Carapella and Jean Flemming compiled studies examining the potential impact of a digital dollar on commercial banking and monetary policy. The review provides a theoretical basis for understanding how CBDCs can affect consumer acceptance and financial stability.
The authors write:
“From a theoretical point of view, the introduction of a digital currency from the central bank (CBDC) raises longstanding questions regarding the provision of public and private money (…) and the ability of the central bank to use CBDC as a means of passing monetary policy directly to households . "
A literature search is essentially an environmental scan on a specific topic that is used to justify the need for additional research. The Fed report identified the "key features of CBDC" as the main research question to be addressed in the future:
“As with any new literature, many questions remain open. We believe that the most important question is what essential features of CBDC as a means of payment and store of value are important for households' portfolio selection, which funds to use. "
On August 13, the Fed released an original research paper comparing CBDCs with other payment methods. Authors Paul Wong and Jesse Leigh Maniff concluded that a CBDC "would never be able to fully replicate all the characteristics of cash and real-time gross settlement services," but that it could improve both types of payment.
Although CBDCs have been dubbed the central bank's "arms race" of the decade, the Fed is in no rush to introduce what is known as the digital dollar. Fed Chairman Jerome Powell said last month that a CBDC is unlikely to be rolled out anytime soon as the US already has a "secure and active dynamic domestic payments system" in place.
Powell emphasized that solving privacy and security risks is more important than gaining a first mover advantage in this area.
China is now taking a far more active approach to adopting its digital currency. Last month, the People's Bank of China completed its largest pilot on the digital yuan by handing out online wallets to 50,000 randomly selected consumers.