Federal Reserve to Engage With Public Regarding Digital Dollar
- Engaging the public is needed in order for the Fed to understand what a possible CBDC will be used for.
- While the U.S. central bank is debating the need for a CBDC, other countries are getting closer to releasing their own national digital currencies.
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Soon after it was announced 2021 will be the year the Federal Reserve engages with the public regarding the creation of a digital dollar, the Fed released a paper outlining how the consultation might look like.
Yesterday, the Federal Reserve Chairman Jerome Powell spoke in front of a House Financial Services Committee hearing, revealing the central bank’s plans regarding the creation of a digital dollar. Powell agreed there were many concerns to be addressed with such a project, but stated that the Fed would first engage with the country’s citizens about the tradeoffs involved with a CBDC before making a decision. He said:
“This is going to be the year that we engage with the public pretty actively including some public events that we are working on, which I’m not going to announce today. In the meantime, we’re working on the technical challenges and also collaborating and sharing work with the other central banks around the world that are doing this.”
Shortly after the hearing the Federal Reserve released an official notice, stating the central bank will engage the public on the pros and cons of creating a digital dollar. Co-authored by Senior Counsel Jess Cheng, payments specialist Angela Lawson, and Technology Lab Manager Paul Wong, the paper stressed that the Fed needs to focus on privacy issues, ease of use, security access, and delivery mechanisms.
The paper stated the central bank needs to engage with U.S. citizens — from various ages, geographic locations, payment habits, and financial literacy — in order to understand what a possible CBDC will be used for.
One of the benefits of a digital dollar would be an “unprecedented” access to the spending habits of its users, if designed in such a way, which is not currently possible with physical banknotes, as they do not have “transaction data that can be connected to a specific person and their history of financial dealings”.
While the Federal Reserve is just now starting to contact the public regarding a CBDC, other countries are getting closer to releasing their own national digital currencies, while some have already done so. The world’s first CBDC, the Bahamas Sand Dollar — officially released in October 2020 — is already supported by a pre-paid debit card, thanks to a collaboration between Mastercard, Island Pay and the Central Bank of The Bahamas.
China, on the other hand, has been conducting real world tests of its digital yuan for some months now, and has already organised four CBDC “red envelope” giveaways. Two of China’s largest private banks, backed by Tencent and Ant Financial, have also joined in the country’s ongoing CBDC pilots.
- The Federal Reserve and FDIC have issued a joint letter demanding the crypto lender remove “false and misleading” statements that it was FDIC-insured.
- The two regulators alleged that this claim “likely misled and were relied upon by customers who placed their funds with Voyager “.
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- Custodia had already received confirmation from the Kansas Fed that its application was complete and had “no showstoppers”, but is yet to receive approval even after 19 months.
- Custodia’s complaint notes that a master account, which provides institutions with direct access to the Fed’s payment system, is “vital” for its business.
- The current head of the OCC has been in talks with the FDIC and the Federal Reserve about setting up an “interagency policy sprint team” focused entirely on crypto.
- The Federal Reserve Vice Chairman of Supervision, Randal Quarles, said the agencies are already engaged in a “joint effort” to come up with definitions related to crypto.