https://ift.tt/3fHGZ2E Introduces Discussion Paper On Benefits And Risks Of A Digital Dollar – Cryptovibes.com – Daily Cryptocurrency and FX News

The United States Federal Reserve (Fed) has successfully unleashed its highly anticipated official CBDC discussion paper. The Fed now intends to gather public opinions on benefits and possible risks related to central bank digital currency (CBDC) or digital dollar.

In a January 20 official publication release titled “Money and Payments: The U.S. Dollar in the Age of Digital Transformation,” the Fed said that it would only pursue the rollout of a CBDC or digital dollar in the context of broad public and cross-government support.

The monetary authority asserted that it would likely not be authorized to issue digital wallets or accounts holding the central bank’s digital currency. However, the Fed assures the public that it would keenly consider privacy concerns and identify verification to combat money laundering and the financing of terrorism.

The publication added that rolling out of the digital dollar in the United States could mitigate risks of “proliferation of private digital money consequently encouraging innovations in private sectors. Other potential benefits of the digital dollar include cross-border payments, scalability, speed, and efficiency of digital payments:

“A CBDC could fundamentally change the structure of the U.S. financial system, altering the roles and responsibilities of the private sector and the central bank.”

“Some have suggested that, if these new CBDCs were more attractive than existing forms of the U.S. dollar, global use of the dollar could decrease — and a U.S. CBDC might help preserve the international role of the dollar.”

The paper delved into possible risks related to the rollout of a digital dollar in the United States market. According to the Fed, the digital dollar could effectively replace commercial bank money, raising prices for retail customers and chase away interest from investments in Treasury bills and other short-term instruments.

The publication also reiterated concerns previously raised by notable industry heads on the stability of the current financial system. In this case, the Fed might increase its reserve based on demand for digital currency, striking the balances between user privacy and transparency needed to prevent fraudulent activities.

In the meantime, the Fed has opened up the comments section for 120 days until May 20, 2022, seeking opinions and concerns to address 22 questions. Some of the contentious questions include policy considerations, design, benefits, and risks associated with the possible rollout of a digital dollar in the country:

“The Federal Reserve will only take further steps toward developing a CBDC if the research points to benefits for households, businesses, and the economy overall that exceed the downside risks, and indicates that CBDC is superior to alternative methods. Furthermore, the Federal Reserve would only pursue a CBDC in the context of broad public and cross-governmental support.”

Fed Chair Jerome Powell first announced the release of the CBDC discussion paper in May 2021, with the publication delayed several times since then.

On January 11, before the Senate Banking Committee, the Fed boss confirmed that the paper would appear in a matter of weeks, citing changes in monetary policies.

Although the Fed previously stated that the CBDC discussion paper “does not favor any policy outcome,” it has maintained that it would only pursue the rollout of digital dollar if the publication meets the required threshold, in addition to cross-government support.

Moreover, Powell previously suggested no rush in rolling out CBDC in the United States, with its rival China ahead with a trial in different cities. Interestingly, athletes traveling to China for the 2022 Winter Olympics in a few weeks will have an opportunity to use the country’s digital yuan.