Federal Reserve economists examine the drivers of the “intrinsic” value of CBDC

The Federal Reserve expanded its research on central bank digital currencies (CBDCs) in a new review posted on its website Monday.

In one report titled “Central Bank Digital Currency: A Literary Review”, the Fed economists, Francesca Carapella and Jean Flemming, compiled research that examines 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 in connection with the provision of public and private money. […] and the central bank’s ability to use a CBDC as a means of communicating monetary policy directly to households. “

Federal Reserve economists examine the drivers of the “intrinsic” value of CBDC
Federal Reserve economists examine the drivers of the “intrinsic” value of CBDC

A literary review is essentially an environmental analysis on a particular subject that is used to justify the need for additional research. The Fed report identified that “intrinsic characteristics of a CBDC” as the most important research question to be addressed in the future:

“As with any new study, many questions remain open. We believe that the most important question is which essential characteristics of a CBDC as a means of payment and store of value are important for households’ portfolio selection with regard to the use of money. “

On August 13th, the Fed released an original research paper comparing CBDCs to other payment methods. the authors Paul Wong and Jesse Leigh Maniff concluded A CBDC could never fully replicate all the functionality of real-time and gross settlement services (LBTR), but it could improve both types of payment.

Although CBDCs have been described as that Central Bank “arms race” of the decade, The Fed is in no hurry to introduce the so-called digital dollar. Fed Chairman Jerome Powell said that last month CBDC is unlikely to be implemented in the short term as the US already has a “secure and active dynamic internal payment system” in place.

Powell emphasized that Resolving privacy and security risks is more important than the first mover benefit move in this space.

China is now taking a much more active approach to adopting its digital currency. Last month, People’s Bank of China completed its largest digital yuan pilot project by distributing online wallets to 50,000 randomly selected consumers.

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