The pros and cons of a CBDC, according to the Federal Reserve

The central bank of the United States – the Federal Reserve – has released a working paper that examines the pros and cons of deploying a possible US CBDC. This is the first conversation the Fed has held with the general public to consider if and how the digital version of the dollar could benefit the national financial system.

Advantages and disadvantages

While many countries, led by China, are rushing to issue their own digital central bank countries and implement them into their monetary network, the United States is in no rush. More than a year ago, Jerome Powell – Chairman of the Federal Reserve – assured that the world’s largest economy would first “carefully and thoughtfully” examine the question before rushing into decisions.

In a recent report, the Fed highlighted the most important advantages and disadvantages of such a financial product.

“We look forward to engaging with the public, elected officials, and a wide range of stakeholders as we consider the positives and negatives of a central bank digital currency in the United States,” Powell said.

The institution noted that consumers and businesses have long held and transferred money digitally, including bank accounts or online transactions. As such, a potential central bank digital currency could continue the trend and provide a “safe digital payment option for households and businesses”. Additionally, CBDC transactions could lead to faster settlement opportunities between nations.

However, the digital version of the US dollar could go against people’s privacy as the government would control the monetary product. It may also not benefit America’s financial stability or advance existing means of payment.

Last year, Powell argued that the main benefit of a CBDC could be to replace cryptocurrencies, including stablecoins. Nonetheless, earlier this month, he changed his mind and said that digital currencies and central bank stablecoins could co-exist.

Chinese CBDC will not work in the United States

In April 2021, the Chairman of the Federal Reserve opined that the United States should not copy and paste China’s model of a central bank digital currency. According to him, the two economic superpowers are very different and require distinct approaches:

“The currency that is used in China is not the one that would work here. It’s the one that really allows the government to see every payment it’s used for in real time.