CBDC may be one part of a broader solution to the challenge of achieving ubiquitous account access.13 Depending on the design, CBDC may have the ability to lower transaction costs and increase access to digital payments. In emergencies, CBDC may offer a mechanism for the swift and direct transfer of funds, providing rapid relief to those most in need. A broader solution to financial inclusion would also need to address any perceived barriers to maintaining a transaction account, along with the need to maintain up-to-date records on active accounts to reach a large segment of the population.14
To explore these broader issues, the Federal Reserve is undertaking research on financial inclusion. The Federal Reserve Bank of Atlanta is launching a public–private sector collaboration as a Special Committee on Payments Inclusion to ensure that cash-based and vulnerable populations can safely access and benefit from digital payments.15 This work is complemented by a new Federal Reserve Bank of Cleveland initiative to explore the prospects for CBDC to increase financial inclusion. The initiative will identify CBDC design features and delivery approaches focused on expanding access to individuals who do not currently use traditional financial services.
Technology Considerations
Multidisciplinary teams at the Federal Reserve are investigating the technological and policy issues associated with digital innovations in payments, clearing, and settlement, including the benefits and risks associated with a potential U.S. CBDC. For example, the TechLab group at the Federal Reserve Board is performing hands-on research and experimentation on potential future states of money, payments, and digital currencies. A second group, the Digital Innovations Policy program, is considering a broad range of policy issues associated with the rise of digital payments, including the potential benefits and risks associated with CBDC.
To deepen our research on the technological design of a CBDC, the Federal Reserve Bank of Boston is partnering with Massachusetts Institute of Technology's (MIT) Digital Currency Initiative on Project Hamilton to build and test a hypothetical digital currency platform using leading edge technology design options.16 This work aims to research the feasibility of the core processing of a CBDC, while remaining agnostic about a range of policy decisions. MIT and the Boston Fed plan to release a white paper next quarter that will document the ability to meet goals on throughput of geographically dispersed transactions with core processing and create an open source license for the code. Subsequent work will explore how addressing additional requirements, including resiliency, privacy, and anti-money-laundering features, will impact core processing performance and design.
Banking Activities
Research and experimentation are also occurring at supervised banking institutions to explore new technology to enhance their own operations and in response to demands from their clients for services such as custody of digital assets. While distributed ledger technology may have the potential to improve efficiencies, increase competition, and lower costs, digital assets pose heightened risks such as those related to Bank Secrecy Act/anti-money laundering, cybersecurity, price volatility, privacy, and consumer compliance. The Federal Reserve is actively monitoring developments in this area, engaging with the industry and other regulators, and working to identify any regulatory, supervisory, and oversight framework gaps. Given that decisions at one banking agency can have implications for the other agencies, it is important that regulators work together to develop common approaches to ensure that banks are appropriately identifying, monitoring, and managing risks associated with digital assets.
Public Engagement
In light of the growing role of digital private money in the broader migration to digital payments, the potential use of foreign CBDCs in cross-border payments, and the importance of financial inclusion, the Federal Reserve is stepping up its research and public engagement on a digital version of the U.S. dollar. Members of Congress and executive agencies are similarly exploring this important issue. As noted above, to help inform these efforts, the Federal Reserve plans to issue a discussion paper to solicit public comment on a range of questions related to payments, financial inclusion, data privacy, and information security, with regard to a CBDC in the U.S. context.17 The Federal Reserve remains committed to ensuring a safe, inclusive, efficient, and innovative payments system that works for all Americans.
1. I am grateful to Alexandra Fernandez, Sonja Danburg, David Mills, and David Pope of the Federal Reserve Board for their assistance in preparing this text. These are my own views and do not necessarily reflect those of the Federal Reserve Board or the Federal Open Market Committee. Return to text
2. See Jerome Powell, "Federal Reserve Chair Jerome H. Powell Outlines the Federal Reserve's Response to Technological Advances Driving Rapid Change in the Global Payments Landscape," Board of Governors of the Federal Reserve System news release, May 20, 2021. Return to text
3. See Lael Brainard, "The Digitalization of Payments and Currency: Some Issues for Consideration," remarks at the Symposium on the Future of Payments, Stanford University, California, February 5, 2021. Return to text
4. See, for instance, Joshua R. Greenberg, Bank Notes and Shinplasters: The Rage for Paper Money in the Early Republic (Philadelphia: University of Pennsylvania Press, 2020). Return to text
5. Codruta Boar and Róbert Szemere, "Payments go (even more) digital" (Basel: Bank for International Settlements, January 2021). Return to text
6. Kelsey Coyle, Laura Kim, and Shaun O'Brien, Consumer Payments and the COVID-19 Pandemic: The Second Supplement to the 2020 Findings from the Diary of Consumer Payment Choice (San Francisco: Federal Reserve Bank of San Francisco, February 2021). Return to text
7. Marie-Hélène Felt, Fumiko Hayashi, Joanna Stavins, and Angelika Welte, Distributional Effects of Payment Card Pricing and Merchant Cost Pass-through in the United States and Canada (PDF), Federal Reserve Bank of Boston Research Department Working Papers No. 20-13 (Boston: FRB Boston, 2020). Return to text
8. See Bank for International Settlements, Committee on Payments and Market Infrastructures, Enhancing cross-border payments: building blocks of a global roadmap Stage 2 report to the G20 (PDF) (Basel: BIS, July 2020); and Financial Stability Board, Enhancing Cross-border Payments: Stage 3 Roadmap (PDF) (Washington: FSB, October 13, 2020). Return to text
9. Christian Pfister, Monetary Policy and Digital Currencies: Much Ado about Nothing? (PDF) Banque de France Working Paper 642 (Paris: Banque de France, 2017). Return to text
10. John Barrdear and Michael Kumhof, The Macroeconomics of Central Bank Issued Digital Currencies, Bank of England Working Paper No. 605 (London: BOE, July 18, 2016), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2811208. Return to text
11. Federal Deposit Insurance Corporation, How America Banks: Household Use of Banking and Financial Services (Washington: FDIC, October 19, 2020); and Federal Deposit Insurance Corporation, FDIC National Survey of Unbanked and Underbanked Households (Washington: FDIC, 2017). Return to text
12. See, for instance the Bank On National Account Standards, https://2wvkof1mfraz2etgea1p8kiy-wpengine.netdna-ssl.com/wp-content/uploads/2020/10/Bank-On-National-Account-Standards-2021-2022.pdf. Return to text
13. See Jesse Leigh Maniff, Inclusion by Design: Crafting a Central Bank Digital Currency to Reach All Americans, (PDF) Payments System Research Briefing, Federal Reserve Bank of Kansas City (Kansas City: FRB Kansas, December 2, 2020); and John Crawford, Lev Menand, and Morgan Ricks, "FedAccounts: Digital Dollars," (PDF) George Washington Law Review, Vol. 89, p. 113, January 28, 2021. Return to text
14. For more information, see the Federal Reserve Community Reinvestment Act Proposed Rulemaking at https://www.federalreserve.gov/consumerscommunities/community-reinvestment-act-proposed-rulemaking.htm. Return to text
15. Federal Reserve Bank of Atlanta, "New Committee to Advance Safe, Efficient, Inclusive Payments," news release, May 12, 2021. Return to text
16. See Eric Rosengren, "Central Bank Perspectives on Central Bank Digital Currencies," remarks at the panel discussion of the Program on International Financial Systems, Harvard Law School, May 12, 2021, ; Jim S. Cunha, "Boston Fed's Digital Dollar Research Project Honors 2 Hamiltons, Alexander and Margaret," Federal Reserve Bank of Boston, February 25, 2021; and Lael Brainard, "An Update on Digital Currencies," remarks at the Federal Reserve Bank of San Francisco Innovation Office Hours, August 13, 2020. Return to text
17. See Jerome Powell, "Federal Reserve Chair Jerome H. Powell Outlines the Federal Reserve's Response to Technological Advances Driving Rapid Change in the Global Payments Landscape," Board of Governors of the Federal Reserve System news release, May 20, 2021. Return to text
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