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Fed Reserve Is Looking At DLT-Based Digital Dollar: Fed Governor

February 10, 2020

The United States Federal Reserve is currently researching the possibility of launching its own digital currency.

Fed Could Launch Digital Dollar To Counter Private Initiatives Like Libra

Lael Brainard, who is currently a governor of the US Federal Reserve, recently revealed that the central bank is carrying out research and experimentingwith distributed ledger technologies. She added that the Fed is looking at the potential use cases of digital currencies and is also considering the creation of a central bank digital currency (CBDC).

Brainard, while delivering a speech at the Stanford Graduate School of Business in California, stated that by changing payments, digitalization could provide more value and convenience at a lower cost. She added that the importance of the US dollar (USD) to the global economy means that the Fed has to lead the way in terms of research and development of digital currencies.

Despite the promises that the DLT holds, Brainard warned that the Fed has to ensure that the technology would make payments faster, safer, and reduce operational costs. They also have to consider if it presents new risks to the current financial system.

She also added that the Fed is working with the private sector to ascertain if additional security measures need to be implemented and if any of the existing regulatory perimeters need to be readdressed. In addition, the question of whether a CBDC would deliver important benefits are also being reviewed.

Interestingly, the statement by Brainard contradicts what she said in May 2018. Back then, Brainard disregarded suggestions that the Fed might launch its own cryptocurrency. While delivering a speech to an audience in San Francisco, she stated that there was no compelling need for the Fed Reserve to issue its own digital currency.

However, the Fed might be looking to launch its own CBDC due to concerns surrounding private digital currencies. The launch of Libra last year by Facebook made it urgent for the Fed to determine what form money can take, Brainard added. They also need to look at who or what can issue money, and how payments on various platforms can be recorded and settled.

Brainard added that some of the new players in the crypto space are playing outside the regulatory guidelines of the financial system.  She also stated that new digital currenciesthat are being introduced could create some challenges including privacy, illicit finance, monetary policy transmission as well as financial stability.

Fed Could Join Other Central Banks In Launching CBDC

Although the US Fed Reserve is yet to commit to the development and issuance of a CBDC, the fact that they are researching it means it could happen in the future. When this happens, they willthen join other prominent central banks around the world in issuing a CBDC.

The People’s Bank of China (PBoC) has been making active developments in the area and will release its Digital Yuan in the near future. According to a survey by the Bank for International Settlements last month, over 10 percent of the banks surveyed could launch a digital currency over the next three years.

This doesn’t come as a surprise as six central banks, including the likes of the U.K. and Japan, and the European Central Bank (ECB) have already formed working groups to partner and share research regarding CBDCs.

While the Fed is yet to join the working group, the central bank governor pointed out that they are working with other central banks to help them gain further understanding of CBDCs.