The Fed Is Analyzing A Central Bank Digital Currency, But Would The US Benefit As Much As Others?

The U.S. Federal Reserve System (FED) is analyzing the possibility to issue a digital dollar. Although there is nothing confirmed, Jerome Powell, the Chairman of the FED, explained that they are exploring whether it makes sense to issue a Central Bank Digital Currency (CBDC).

Could CBDCs Change The Economy?

In a recent letter signed by Jerome Powell answering to U.S. Representatives French Hill and Bill Foster, he said that the Federal Reserve is currently monitoring the developments of other central banks regarding CBDCs.

Powell explained that they are continuously analyzing the costs and benefits of launching a CBDC but the conditions of the market are not yet ideal.

He stated that these CBDCs are suitable for specific economies in which societies migrated away from cash into other technological solutions. Meanwhile, the United States has a strong demand for cash, which cannot be seen in other economies.

At the same time, he stated that the payments landscape in the United States is very competitive compared to some countries. There are several options available for customers in the market, and this is why it may not need a CBDC.

Furthermore, Powell continued saying:

“If it is designed to be financially transparent and provide safeguards against illicit activity, a general purpose CBDC could conceivably require the Federal Reserve to keep running record of all payments data using the digital currency […] and sometimes that raises issues related to data privacy and information security.”

At the moment, there are several countries that analyzed the possibility to issue CBDCs. The National Bank of Ukraine, for example, is focusing on analyzing the effects that an ‘e-hryvnia’ would have on the market.

The Bank of England has also released different papers on the effects a CBDC would have over the economy.

Venezuela is the first country in the world to have a national cryptocurrency called Petro. Although there aren’t many use cases for it, the government is trying to expand its usage in the country.

Whether the U.S. will be issuing a digital dollar remains to be seen and it seems that the FED will carefully analyze any other implementation before launching its own CBDC.

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