Federal Reserve Reveals Digital Dollar Research Plans

Federal Reserve Governor Lael Brainard gave a broad description of the Fed’s ongoing research and plans into the potential development of a Federal Reserve (CBDC), also described in the US as a digital dollars. Brainard, who has led the Fed’s discussion for years on distributed ledger technology and digital currency, notes that the Fed is active in conducting research and experimentation in these areas.

In her speech to the Federal Reserve Bank of San Francisco’s Innovation Office Hours today, Brainard stated, “Given the important role of the dollar, it is essential that the Federal Reserve stay on the edge of research and policy development. As part of this research, central banks are exploring the potential of innovative technologies to provide a digital equivalent of cash … We continue to assess the opportunities and challenges, such as the usual cases for a CBDC, as a complement to cash and other payment options. ”

Brainard described ‘in-house experiments’ at the Board Technology Lab, in which a multidisciplinary team of application developers from the Federal Reserve Banks of Cleveland, Dallas and New York help support a policy team on the board that has the ‘implications’. of digital currencies on the ecosystem of payments, monetary policy, financial stability, banking and finance, and consumer protection. ”

In addition, Brainard explained how the Federal Reserve Bank of Boston collaborates with researchers at the Massachusetts Institute of Technology. Robert Bench is an Assistant Vice President of the Secure Payments Group for the Federal Reserve Bank of Boston, which has been making a multi-year effort to introduce a hypothetical digital currency for the purposeful use of central banks. Brainard noted lessons from this collaboration will be published using codebase provided as open-source software.

Bench was recently interviewed by J. Christopher Giancarlo, Senior Counsel at Willkie, Farr, and Gallagher and the former chairman of the Commodity Futures Trading Commission (CFTC) in a webinar ‘Digital Dollar Live’. Giancarlo is a main character and project leader at the Digital Dollar Project (DDP), which hosted the webinar. He has testified three times at Capitol Hill this year on the subject where he compared the critical importance of making a tokenized US digital dollar to compete with China and maintain the global status reserved for the United States.

Brainard explained the objectives of the study are to understand the security and efficiency of digital currency systems, including ‘private sector arrangements’, and to provide practical experience in obtaining the technologies available for central bank funding. The fact that Brainard mentioned the understanding of ‘private sector regulations’ may be a signal that the Fed will consider private sector inputs. At a recent hearing in the House of Representatives in response to a question from Congressman Tom Emmer (R-MN), Fed Chairman Jerome Powell noted that he did not believe that the participation of the private sector in the production of US dollars by the citizens would be trusted. “I think this is something that central banks need to design,” Powell said. “The private sector is not involved in making the money ban, which is what the central bank is doing.”

Brainard also mentioned that with China making rapid progress on a version of the CBDC, she explained that the study that the Federal Reserve would also need to evaluate the policy behind the implementation of a digital dollar. Brainard explained, “a significant policy process would be needed to consider the issuance of a CBDC, along with extensive consultation and involvement with other parts of the federal government and a broad set of other stakeholders.” The speech also warned that the laws of the Federal Reserve Act should be examined, “regarding currency issuance applicable to a CBDC and whether a CBDC would have legal tender status, depending on the draft,” and that the Fed would not decide to participate to this deep dive into policy.

Brainard also stated that the US shares the CBDC coalition of central banks on lessons learned, conducting joint experiments, to understand the threats to cybersecurity, counterfeiting and fraud, and anti-money laundering. With shared goals of “increasing the convenience and efficiency of cross-border transactions,” Brainard also warned of the occurrence of a ‘poorly designed CBDC’ that could create financial stability problems elsewhere. She explained the Federal Reserve’s new initiative with the Bank of International Settlement’s Innovation Hub, through an innovation center at the Federal Reserve Bank of New York, would also help the US keep abreast of developments in other countries that are advancing. to a CBDC.

In terms of real-time payments, Brainard also embraced the FedNow concept^SM Service, she explained, “will enable millions of U.S. households and small businesses to access funds directly instead of waiting for checks to be removed.” The Federal Reserve received a bi-partisan letter from Congressman Bill Foster (D-IL) and Congressman French Hill (R-AR) late last year to begin exploring digital currencies, in which President Powell noted that the Fed was looking at digital currencies. .

Brainard’s full speech offers transparency in how the US Federal Reserve is investigating the possibility of a digital currency can be found here.