The Fed’s efforts to study the national cryptocurrency does not mean that any decision has been made regarding this payment instrument. The regulator is still assessing the risks associated with CBDC.
The Federal Reserve System (FRS) began studying the central bank digital currency (CBDC) long before the COVID-19 pandemic. The head of the Federal Bank of Cleveland, Loretta Mester, said in her report that the governing board of the Fed “has created and tested a number of distributed ledger (DLT) platforms to assess the potential benefits of their use and the trade-offs associated with them.”
Mester also noted the initiatives of the Federal Reserve, which the regulator launched in conjunction with research universities and foreign colleagues. For example, she mentioned the “long-term partnership” between the Massachusetts Institute of Technology (MIT) and the Federal Bank of Boston, as well as the cooperation of the New York branch of the Fed with the Bank for International Settlements (BIS).
However, according to Mester, efforts to study the CBDC do not “signal any decision by the Federal Reserve System regarding the adoption of such currency.” The official explained that more clarity is needed on issues related to financial stability, market structure, security and privacy, and monetary policy.
The coronavirus pandemic has caused major disruptions to the payments sector, which Mester calls the US “critical infrastructure”. This, in turn, influenced the structure and volume of internal transfers. Mester stressed that the US “is important to make the necessary investments in the resilience of the payment system in the face of extreme stressful events.”
The spread of COVID-19 has increased the dependence of businesses and individuals on digital services and faster connectivity as many employees work remotely and consumers prefer to shop online.
– The head of the Federal Bank of Cleveland, Loretta Mester
Earlier, a member of the Federal Reserve Board Lael Brainard also said that the regulator is testing the possibilities of the digital dollar. According to her, against the background of the pandemic, the need of society for a stable payment system has become especially obvious. The Fed believes that such a system could be FedNOW, which has been in development for over a year.
In August, the regulator said it had accelerated the development of a national payment system. FedNOW is slated to launch in 2023/2024. According to the Fed’s idea, the system should become a kind of springboard on the basis of which US financial institutions will be able to offer their clients a range of services, which were previously unavailable.