Boston Fed Staffers Offer Road Map in Digital-Dollar Research Effort
March 31 2021 - 10:51AM
Dow Jones News
By Michael S. Derby
The first glimpse of research that could eventually lead to a
Federal Reserve digital dollar should arrive this fall, according
to people working on the effort.
Some time in the third quarter, the Federal Reserve Bank of
Boston, working with researchers at the Massachusetts Institute of
Technology, will reveal the first stage of a project that could
years down the road yield a Fed digital dollar, James Cunha, the
Boston Fed's senior vice president of Secure Payments and FinTech
Research, said in an interview last week.
The U.S. central bank is one of many around the world
considering the introduction of a digital currency. Proponents of
the idea say digital currencies would offer faster settlements, cut
money-transfer costs or even eliminate them, and may even have
benefits for monetary policy. But the Fed hasn't offered details
about what a digital dollar -- which some have dubbed Fedcoin --
would look like.
This first stage of the research by the Boston Fed and MIT lays
the initial groundwork for a new type of money some have dubbed
Fedcoin. As part of this initial effort, the early version of the
computer code for a potential digital currency will be made
available for public examination. Fed researchers are trying
"understand what's possible, but also share it because we know many
others are interested in the same questions around the globe," Mr.
Cunha said.
After that, the project will continue to explore different
systems, with software built from the ground up for the purpose,
that could deliver a digital dollar, Mr. Cunha said. The aim is to
see what options are available and then present them to policy
makers, he said in an interview.
Researchers will consider how to balance the speed of any
potential system with security, privacy and the need to protect it
from criminals who might seek to exploit it, Mr. Cunha explained.
But the effort is also a rethink of what a dollar can be.
"We tried to sort of throw out the norm and think differently
about how to solve some of these problems," he said.
The Boston Fed staffers' update on a Fed-issued digital dollar
comes as part of a slow moving central bank effort spurred by the
rise of private offerings like Bitcoin. The Fed staffers say their
efforts are mindful of private offerings but don't seek to
replicate them. For instance, the creation of Fed digital dollars
wouldn't mimic the energy intensive mining system seen in some
private offerings, they said.
Few see a near term threat to the dollar's status from private
cryptocurrencies.
Central-bank digital currencies, also known as CBDCs, "are an
opportunity for central banks to offer a technologically advanced
representation of central bank money for the digital economy," said
AgustÃn Carstens, General Manager of the Bank for International
Settlements, in a speech text Wednesday. "The crucial novelty is
that CBDCs offer the unique characteristics of central bank money
as safe, neutral and final," he said.
U.S. central bank officials have said their primary focus is
getting any digital dollar right, rather than being quick to
launch. They're mindful that in a world where the dollar is the
global reserve currency and private financial firms play a huge
role in the economy, any work on a digital dollar shouldn't
compromise the existing regime.
"We don't need to rush this project, and we don't need to be
first to market," Federal Reserve Chairman Jerome Powell said last
week. "The real threshold question for us is does the public want
or need a new digital form of central bank money to complement what
is already a highly efficient, reliable and innovative payments
arena and system," he said.
Mr. Powell also said a digital dollar is not up the Fed to
create on its own, given the stakes. "We would not proceed with
this without support from Congress," he said.
Mr. Powell has highlighted cybersecurity risks and also noted
that many Americans are attached to old-school paper money,
presenting another challenge to a digital dollar. The San Francisco
Fed noted in a report in mid-March that Americans substantially
boosted holdings of cash during the coronavirus pandemic, and said
they were not averse to using paper money and coins, even in an
uncertain health environment due to the coronavirus pandemic.
Some academics have worried that central bank digital money and
the accounts that would hold it could risk destabilizing the
broader financial system in times of stress. As they see it,
trouble could flush money out of private banks and into central
bank accounts for safety purposes, hurting private banks. Official
digital money could also make it harder for banks to offer credit,
some believe.
Mr. Cunha said the potential system would likely involve digital
dollar holdings being held separately from conventional dollars in
bank accounts, while banks would likely present both kinds of
currency to users in a unified fashion.
Write to Michael S. Derby at michael.derby@wsj.com
(END) Dow Jones Newswires
March 31, 2021 10:36 ET (14:36 GMT)
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