Fed plans to launch the U.S. CBDC review this week, weighing pros and cons

The U.S. Federal Reserve aims to launch a review as early as this week, on possible advantages and drawbacks upon issuance of the digital Dollar. According to the latest Wall Street Journal report, the review will be launched through a paper, that will further analyze the issue, along with accumulating public comments on the topic. However, this paper will most likely exclude any firm policy recommendations.

Furthermore, there may be another paper that will cover technical aspects of the Digital dollar, highlighting the operations’ structure. This is expected to be published by the Boston Fed, working with researchers at the Massachusetts Institute of Technology.

Pro CBDC arguments

The U.S. central bank-backed digital currency may not see the light of day just yet as Fed officials remain divided on the matter. Supporters of CBDC amongst the officials claim that this could revolutionize the economy, by facilitating faster and cheaper domestic and international transactions. Furthermore, the advocates of the digital dollar also assert that it could cure poverty by carving out the path for the government to provide financial aid to people who lack bank accounts.

“It’s just very hard for me to imagine that the U.S., given the status of the dollar as a dominant currency in international payments, wouldn’t come to the table in that circumstance with a similar kind of an offering,”, Fed. Gov., Lael Brainard said in remarks before the National Association for Business Economics on Sept. 27.

Officials argue Against CBDCs

The opposing view on CBDC argues that it could potentially impair the financial system. According to a Philadelphia Fed report, the U.S. central bank CBDC could destabilize the financial system, especially during a crisis. If everyone begins to withdraw their money out of banks, along with mutual funds, stocks, and other investments, and hurtle the entirety into the Fed-protected CBDCs.

Furthermore, Fed Chairman, Jerome Powell has also indicated being cautious with the issuance of CBDCs. In lieu of the Dollar’s global dominance, Powell suggested it is necessary to be thorough before implementing anything. Powell, along with several other Fed officials claim that Fed’s research is “early and exploratory”.