Private Digital Payment Systems Are Pushing The Fed Reserve To Look At DLT-Based CBDCs

  • US Federal reserve is looking into the feasibility of a Central Bank Digital Currency.
  • Libra sparked global debate touching on the impact of digital currencies would have especially in relation to data and privacy.

On Feb 5th during a sit down with Stanford University dean, Federal Reserve governor, Lael Brainard was optimistic at the possibility of launching their own digital currency. They are in the process of analyzing a wide array of concerns they could potentially face including policy and legal concerns.

She further explained how digitalization of payment processes would go a long way in offering greater value and convenience at low rates. However, she steered clear off the issue of interest rates and the current economic layout.

She expressed fears that she among other central bankers globally harbored on the uptake of private online payment platforms and the digital currencies especially from the Libra project. With some of the new parties’ cryptocurrencies not falling under the current financial system guidelines which could soon raise new concerns in sectors touching on financial illegalities. She said,

“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.”

The federal reserve has prioritized building its own 24/7 payment and settlement platform while going through the comment letters they got last year relating to the platforms design and its scope. They have also carried out various researches and experiments in regards to the probable use of cryptocurrencies and how feasible a Central Bank Digital Currency (CBDC) would be. Reports emerging from China seem to indicate that they are also on course to developing their own CBDC.

Libra sparked global debate on CBDC

During a conference last year held in San Francisco, Lael Brainard had down played the urgency of here for issuing such. However, they seem to have change their stance following the increased hype of Libra’s announcement. Concerns of data and privacy rights of consumers have been looming as Libra is set to affect almost a third of the continents population who are Facebook account holders.

Indeed, Libra has sparked a global debate revolving on digital currencies as Brainard insinuated how working together with other central banks would be instrumental in bridging the knowledge gap on CBDC’s. she also insisted on need to weigh the trade-offs of a digital currency and specifically how banks would be able to convert fiat currency to the CBDC in a ‘single swipe’.

Other concerns apart from protection from fraud was the question of if the digital currency would be acceptable as legal tender.

She also emphasized on the need for the government to collaborate with private sector to establish whether the new parameters are in order and how useful CBDC would be overall.

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