Friday, May 20, 2022

Federal Reserve Report on Digital Currency Centers at Banks

WASHINGTON (AP) — The Federal Reserve on Thursday released a long-awaited report on central bank digital currencies that says it is leaning towards banks and other financial firms, rather than the Fed itself, managing customer digital accounts.

A central bank digital currency will differ in some key ways from the online payments and digital payments that millions of Americans are already making. These transactions go through banks, which are not necessary with the digital dollar.

The Fed document, while emphasizing that no final decisions have yet been made on the digital currency, said it would likely follow a “interim model” whereby banks or payment firms would create accounts or digital wallets. Alternatively, the Fed could issue digital dollars directly to consumers. But, as the newspaper notes, the Fed is not legally authorized to create individual accounts.

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In its study, the Fed described the likely introduction of a digital currency as a far-reaching step that will require widespread acceptance in the financial world.

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“The introduction of (a central bank digital currency) will represent a very important innovation in US money,” the Fed said in a study. “Broad consultation with the general public and key stakeholders is essential.”

The Fed paper comes as digital money circulates in a wide variety of forms. Millions of people own cryptocurrencies, although they are often used more as an investment than as a form of payment. But so-called stablecoins, which are often pegged to the dollar, have also skyrocketed in use in the past year, mostly for cryptocurrency transactions.

And most central banks around the world are looking into government-backed digital currencies. China’s central bank has already tested a digital version of the yuan. Some Caribbean countries have already issued digital currencies.

The digital dollar can bring many benefits as well as risks. It would be a more secure form of digital payments because the Fed, unlike a bank or stablecoin companies, cannot go bankrupt. It may be easier and cheaper for people without bank accounts.

At the same time, the digital currency may pose privacy risks as it will be issued by the government. However, the Fed document suggests that banks and other third-party firms will protect consumer data from the Fed while enforcing existing rules against money laundering and other illegal activities.

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Such a government-issued digital dollar could also have significant implications for commercial banks, as many Americans may choose to store such a currency in a “wallet” issued by a payment service provider such as PayPal or Venmo, potentially reducing bank deposits. It will also compete with stablecoins and could reduce the cost of financial transactions, especially money transfers abroad.

However, if the Fed decides to do so, it will most likely be in a few years to actually issue a digital currency. The document, released on Thursday, opens a 120-day comment period during which the Fed will solicit public input. Fed officials said the central bank did not make decisions about the digital currency or how it would operate. The Fed has said that this will only happen if Congress specifically passes legislation allowing the digital currency.

Nation World News Desk
Nation World News Deskhttps://nationworldnews.com
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