U.S. Federal Reserve Now Open To The Idea Of CBDC, Researches DLT

The United States Federal Reserve’s board of governors is looking into distributed ledger technologies (DLT) and its use case for Central Bank Digital Currency (CBDC).

During a symposium on the future of payments at the Stanford Graduate School of Business on 5 February, Lael Brainard, a member of the Fed’s board of governors, said that the country’s central bank is already “conducting research and experimentation” on DLT’s potential use cases, especially for digital currencies.

She said:

“Given the dollar’s important role, it is essential that we remain on the frontier of research and policy development regarding CBDC. Like other central banks, we are conducting research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including the potential for a CBDC.”

Brainard cited a 2020 survey, conducted by the Bank of International Settlements (BIS), which revealed that as many as 80 percent of the central banks around the world are already engaged in some sort of CBDC work. That number seems to be 10 percent higher than BIS’ 2019 survey.

During her speech, she also put emphasis on the need to evaluate if the new technology could make payments safer, and whether it presented any new risks to the financial system. She also said that the private and public sector need to work together with the research community in order to determine “whether new guardrails need to be established, whether existing regulatory perimeters need to be redrawn, and whether a CBDC would deliver important benefits on net”.

In 2018, Brainard spoke at the Digital Currency Conference in San Francisco, where she said that “there is no compelling demonstrated need for a Fed-issued digital currency”. Her change in stance on the matter is likely due to the concerns of privately issued digital currencies, and especially Facebook’s announcement of its Libra stablecoin. She said:

“Because Facebook has an active user network of one-third of the global population, the company’s Libra global stablecoin project has imparted urgency to the debate over what form money can take, who or what can issue it, and how payments can be recorded and settled.”

Last October, two U.S. lawmakers sent a letter to the Federal Reserve, requesting that the Federal Reserve considers the creation of a U.S. dollar digital currency. In their letter, the lawmakers expressed their concerns that the U.S. dollar’s importance could be at risk if a widely used digital fiat currency was created by another country or a private company

Central banks around the world are showing an increased interest in digital currencies, especially the People’s Bank of China, which has already completed the “top-level design, standard formulation, functional research and development”, as well as a joint testing of its planned digital yuan.

Last month, the central banks of Canada, England, Japan, Sweden, Switzerland, the European Central Bank, and the BIS joined hands in sharing knowledge, and researching CBDC’s.