new York The US Federal Reserve is holding back in its long-awaited position paper on launching a digital version of the US dollar. In the analysis released on Thursday, the Fed made no policy recommendations and also left its position open on whether to launch a central bank digital currency (CBDC).
Nevertheless, the Fed listed advantages and disadvantages that a digital dollar would have from their point of view. In this way, it can speed up payments and offer households a secure payment option. However, it also harbors risks for financial stability and there are concerns about data protection. The government must also continue to be able to fight illegal financial flows. The paper was announced by Fed Chair Jerome Powell in 2021.
Unlike cryptocurrencies, which are typically operated by private actors, CBDCs would be issued and backed by the central bank. Their introduction is being examined by currency watchdogs around the world. Because the existing payment system has shortcomings. Transactions by private customers and companies run through accounts with banks and central banks. Several institutes are usually involved in a transfer. As a result, transferring money across borders can be slow, expensive and error-prone.
Private cryptocurrencies such as Bitcoin show that there is another way. They are based on blockchain technology. This is a forgery-proof, digital transaction register that no longer requires intermediaries such as banks. Flows of money run directly between two parties. A disadvantage of cryptocurrencies, however, lies in their enormous fluctuations in value. On the other hand, the value of digital central bank money, which is also based on blockchain, should be as stable as that of banknotes.
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More: Central bank chief Lagarde is driving the development of a digital currency. Germany and France in particular are following the plans with great interest.