Greenback Goes Digital: US CDBC coming soon?
Updated: Mar 30
Mixed messages in the US concerning Central Bank Digital Currencies (CBDC) have made it difficult to predict whether the US Federal Reserve would be seriously considering a move to make the US dollar digital. However, Federal Reserve Chair Jerome Powell recently called a digital dollar a "high priority project." Some reports state that prototypes could be unveiled as early as the Q3 of this year.
Powell emphasises that the Federal Reserve is not in a a rush and said:
We have an obligation to be on the cutting edge of understanding the technological challenges as well as the potential costs and benefits of a digital dollar. We don’t need to rush this project.
The Federal Reserve's approach is not revolutionary but is important in building institutional knowledge and testing the waters for regulators. Since 2014, JP Koning has been advocating for a peer-to-peer Fedcoin but it is unclear whether the CBDC would be supported by distributed blockchain technology. Powell's intention for a CBDC to be launched in the existing monetary system is apparent. With reference to the Bank for International Settlements report which the Federal Reserve contributed to, Powell said:
One of the three key principles highlighted in the [BIS] report is that a CBDC needs to coexist with cash and other types of money in a flexible and innovative payment system.
The Federal Reserve Bank is collaborating with the Massachusetts Institute of Technology (MIT) for the project. MIT aims to unveil two prototypes in July for the colloquially named 'Fedcoin.'
As is often the case, the US's change of tune regarding a CBDC may be influenced by key players such as Mastercard and Visa actively moving into and exploring digital currencies. It will be interesting to see whether MIT ultimately unveils a similar, integrative, approach to Mastercard and Visa have adopted or whether they seek to pioneer a digital currency to co-exist with existing systems to put incumbents at ease. Similarly, the degree to which Koning's ideas are embraced or developed by the US Fed will be instructive for other countries which might not be moving as quickly towards a retail CBDC.