Federal Reserve Bank of Cleveland President Loretta Mester revealed that each American would receive digital dollars directly. She said,
“Legislation has proposed that each American have an account at the Fed in which digital dollars could be deposited, as liabilities of the Federal Reserve Banks, which could be used for emergency payments.”
This was revealed on Wednesday when Mester delivered a speech to the Chicago Payment Symposium titled “Payments and the Pandemic,” in which she talked about “Central Bank Digital Currencies.”
Fed Digital Cash
Other proposals include creating digital cash — which is just like the physical currency issued by central banks but in digital form and “potentially, without the anonymity of physical currency.”
Digital cash wouldn't require the involvement of commercial banks as they would be directly issued to the users’ digital wallets with central-bank-facilitated transfer and redemption services.
However, the demand for and use of such instruments is to be further considered, she said, adding the potential risks and policy issues surrounding CBDC also needs to be better understood and costs and benefits evaluated.
Mester also said that the Fed has been researching about issuing CBDC for some time, and already the technology lab of the Board of Governors has been testing the benefits and tradeoffs of distributed ledger platforms.
While the Federal Reserve Bank of Boston is working with MIT on different technologies for the CBDC, the New York Fed has collaborated with BIS to understand the relevance of fintech for central banks.
Although the authorities have been doing all the research, she said it “does not signal any decision” by the Fed to adopt such currency as they need to first better understand the issues related to financial stability, market structure, security, privacy, and monetary policy.
Metser concluded her speech by saying that the payment system, which is a critical part of the US infrastructure, must remain modern, resilient, and able to adapt to changing customer needs as they evolve.