First Report Released Without Conclusion on Digital Dollar Issuance
Listing Advantages and Disadvantages of CBDC... '22 Public Questions' Remain
[Asia Economy Reporter Park Byung-hee] The U.S. central bank, the Federal Reserve (Fed), has released its first report on Central Bank Digital Currency (CBDC). With central banks in countries such as China and Japan showing movements toward adopting CBDCs, attention was focused on the Fed’s stance, but the conclusion was a ‘reservation.’
The Fed stated that it is still difficult to determine whether the benefits or costs of issuing a digital dollar are greater, and thus has not made a decision on whether to issue a digital dollar. Instead, it posed 22 public questions related to the issuance of a digital dollar and sought answers from the public. The 40-page Fed report is titled "Money and Payments: The U.S. Dollar in the Age of Digital Transformation."
- What is a CBDC?
▲ It refers to digital currency issued by a central bank. Unlike traditional physical currency, the value of the currency is stored electronically, and payments are made through fund transfer functions between users. Recently popular cryptocurrencies such as Bitcoin and Ethereum are digital currencies. Unlike these cryptocurrencies, CBDCs are issued by central banks, which guarantees their credibility. Therefore, the risk of sudden price fluctuations like Bitcoin is lower.
- Is the Fed issuing a CBDC, that is, a digital dollar?
▲ Not at the moment. However, it said that long-term discussions are necessary and left open the possibility of issuing one in the future. It can be seen as deferring the decision on issuance. Fed Chair Jerome Powell stated in a press release, "We want to weigh the pros and cons of issuing a digital dollar with a wide range of stakeholders, lawmakers, and the public." Eswar Prasad, a digital currency expert and professor at Cornell University, explained, "CBDC is an unavoidable agenda for central banks, and the Fed is ultimately involved. Central banks are considering how to maintain monetary and financial stability amid various financial innovations reshaping financial markets and industries."
- What are the advantages and disadvantages of CBDC as stated by the Fed?
▲ The Fed evaluated that as technology advances, CBDCs could become a safe means of payment and could speed up cross-border trade payments. However, it pointed out that questions remain about whether monetary and financial stability can be guaranteed, whether personal information can be protected, and whether it is possible to respond to illegal financial fraud.
- If a digital dollar is issued, what impact will it have on the current key currency, the dollar?
▲ The biggest reason the Fed is cautious about issuing a CBDC is the concern that it could weaken the status of the dollar as the key currency. Chair Powell has emphasized in the past that CBDCs should be a complement, not a substitute, for existing currency. He stressed that CBDCs should not replace existing currency. China has already begun CBDC experiments ahead of the U.S., with the intention of preempting the CBDC market to raise the international status of the yuan. However, it is still difficult to judge what impact a digital dollar would actually have on the dollar. There is a risk that the dollar’s status could weaken. The Fed also stated that it is difficult to weigh the benefits and risks of issuing a digital dollar and will collect various opinions.
- How does the Fed plan to collect various opinions?
▲ The Fed left 22 public questions in the report seeking public opinion on the issuance of a digital dollar. Questions include "What are the benefits and risks of CBDC not mentioned in this report?", "Could CBDC affect the Fed’s monetary policy?", "Should CBDC be legal tender?", and "Should interest be paid on digital dollars?" The Fed announced that anyone can respond to the questions by May 20 and also disclosed the website where responses can be submitted.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
