Fed Weighs Costs And Benefits Of Issuing Digital Currency

The United States Federal Reserve is examining the possibilities and issues surrounding cryptocurrencies and digital payments, which include whether there would be a benefit to the agency issuing a digital currency, according to a report by Reuters.

During a speech at the Stanford Graduate School of Business, Governor Lael Brainard said, “By transforming payments, digitalization has the potential to deliver greater value and convenience at [a] lower cost.” She did not mention interest rates or the current state of the economy.

Brainard has previously touched on other central bankers’ feelings of trepidation about issuing currencies, including Facebook’s proposed Libra, noting that there are risks involved.

“Some of the new players are outside the financial system’s regulatory guardrails, and their new currencies could pose challenges in areas such as illicit finance, privacy, financial stability and monetary policy transmission,” she said.

The benefit that is enticing to central banks is the almost instantaneous nature of digital currency and its relative low cost. However, they are wrestling with how to manage the technology, including the distributed ledger systems.

Brainard said the Fed is currently working on its own 24/7 settlements and payments service, and that it is reviewing around 200 letters it has received on the issue.

It is also “conducting research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including the potential for a CBDC (central bank digital currency),” Brainard noted.

A recent study showed that banks all over the world are working on similar projects, and that China has already started moving ahead with its own plans.

“In the United States no less than in other major economies, the public sector needs to engage actively with the private sector and the research community to consider whether new guardrails need to be established, whether existing regulatory perimeters need to be redrawn and whether a CBDC would deliver important benefits on net,” said Brainard.