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  • Writer's pictureP Xenos and M Bacina

U.S. Federal Reserve ruminating central bank digital currency

United States Federal Reserve Governor Lael Bainard has recently said that the U.S. central bank is currently ‘advancing its understanding’ of central bank digital currencies (CBDCs).

Lael Brainard is a member of the U.S. Federal Reserve’s Board of Governors, and serves as Chair of the Committees on Payments, Clearing and Settlements, Consumer and Community Affairs, Financial Stability, and Federal Reserve Bank Affairs.

Speaking at a payments conference at the Stanford Graduate School of Business in California, Brainard said:

We are collaborating with other central banks as we advance our understanding of central bank digital currencies.

Brainard’s speech showcased an entirely different attitude compared to that of May 2018, where Brainard said that she saw “no compelling demonstrated need for a Fed-issued digital currency”. Now, she says (emphasis added):

Given the dollar’s important role, it is essential that we remain on the frontier of research and policy development regarding CBDC.

Brainard elaborates that this tonal shift towards embracing and exploring a potential CBDC centres around the existing popularity of electronic payments in the country, as plenty of U.S. consumers and businesses are already making electronic payments with credit and debit cards, payment apps, and through the automated clearinghouse networks.

Of course, since May 2018 the landscape of the digital asset space as changed dramatically, with Facebook’s ongoing Libra project being a prime example. Brainard also said:

Because Facebook has an active user network of one-third of the global population, the company’s Libra global stablecoin project has imparted urgency to the debate over what form money can take, who or what can issue it, and how payments can be recorded and settled.

Brainard's comments show that the U.S Government is beginning to embrace potential benefits of ‘digitalization’, stating that she sees “the potential to deliver greater value and convenience at lower cost”.

Although it is surprising and promising news that CBDC exploration in the US is well and truly underway and gradually surfacing to the forefront of technological and financial research and innovation in the country, there is still some way to go when taking a quick glance at the European region, where the European Central Bank are not only exploring CBDCs, but have established a task force to determine the feasibility of implementing a CBDC.

In Australia, the Reserve Bank of Australia's recent submissions to the Senate Select Committee on Fintech and Regtech confirmed that the RBA is actively experimenting with wholesale alternatives on a private Ethereum network. The Australian Financial Review recently praised these experiments and endorsed the ongoing journey towards an Australian digital dollar.


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