Fed study on digital currency leans toward role for banks – CT Post

WASHINGTON (AP) — The Federal Reserve on Thursday released a highly anticipated report on central bank digital currencies that suggested it is leaning toward having banks and other financial firms, rather than the Fed itself, manage digital accounts for customers.

A central bank digital currency would differ in some key ways from the online and digital payments that millions of Americans already conduct. Those transactions are funneled through banks, which wouldn’t be necessary with a digital dollar.

The Fed’s paper stressed that no final decisions about a digital currency have been reached. But it suggested that a digital currency that “would best serve the needs” of the nation would follow an “intermediated model” under which banks or payment firms would create accounts or digital wallets.

The Fed characterized the potential introduction of a digital currency as a step that could have far-reaching consequences for banks and other financial firms as well as for the central bank itself.

“The introduction of a (central bank digital currency) would represent a highly significant innovation in American money,” the study said. The Fed said it “could fundamentally change the structure of the U.S. financial system, altering the roles and responsibilities of the private sector and the central bank.”

The report comes at a time when digital money is proliferating in a variety of forms. Millions of people own cryptocurrencies, though they are often used more as investments than as forms of payment. But so-called stablecoins, which are often pegged to the dollar, have also soared in use in the past year, mostly for cryptocurrency transactions.

And most central banks around the world are studying government-backed digital currencies. China’s central bank has already tested a digital version of the yuan. The European Central Bank began exploring a digital euro in October and said its “investigation period” would last two years. Some Caribbean nations have already issued digital currencies.

China’s action and the explosion of stablecoins, which can be used in place of dollars in international transactions, have raised pressure on the Fed to consider a digital currency. Last March, Chair Jerome Powell said that while the Fed needed to keep pace with financial innovations, it would proceed cautiously.

“As the world’s principal reserve currency…we have an obligation to be on the cutting edge of understanding the technological challenges,” Powell said then. “But…we don’t need to rush this project. We don’t need to be first to market.”


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