Federal Reserve Board releases discussion paper

https://www.federalreserve.gov/newsevents/pressreleases/other20220120a.htm


Money and Payments: The U.S. Dollar in the Age of Digital Transformation


This paper examines the pros and cons of a potential U.S. central bank digital currency, or CBDC, and is the first step in a discussion of whether and how a CBDC could improve the safe and efficient domestic payments system. Money and Payments: The U.S. Dollar in the Age of Digital Transformation (PDF) invites comment from the public. Importantly, the paper does not favor any policy outcome.

The paper summarizes the current state of the domestic payments system and discusses the different types of digital payment methods and assets that have emerged in recent years, including stablecoins and other cryptocurrencies. It concludes by examining the potential benefits and risks of a CBDC, and identifies specific policy considerations.

Consumers and businesses have long held and transferred money in digital form, via bank accounts, online transactions, or payment apps. The forms of money used in those transactions are liabilities of private entities, such as commercial banks. Conversely, a CBDC would be a liability of a central bank, like the Federal Reserve.

While a CBDC could provide a safe, digital payment option for households and businesses as the payments system continues to evolve, and may result in faster payment options between countries, there may also be downsides. They include how to ensure a CBDC would preserve monetary and financial stability as well as complement existing means of payment. Other key policy considerations include how to preserve the privacy of citizens and maintain the ability to combat illicit finance. The paper discusses these and other factors in more detail.

To fully evaluate a potential CBDC, Money and Payments: The U.S. Dollar in the Age of Digital Transformation (PDF) asks for public comment on more than 20 questions. Comments will be accepted for 120 days and can be submitted here.

 

So finally USA is following the lead of China, a country ruled by an autocratic dictatorship, to potentially implement a digital currency completely under the control of the US government. The purpose of the digital currency is not "whether and how a CBDC could improve the safe and efficient domestic payment system", it's whether and how a CBDC could allow the US government to more effectively and efficiently control and manipulate the financial wealth of its citizens and everybody around the world who chooses to possess and use the US dollar exactly as how China is setting out to do with its currency Yuan when it digitizes it. So from a strategic point of view, it might be more of a response to China's potential and perhaps eventual digitization of its currency. Once China digitizes its currency, any country that trades with China and in this case including USA considering that 90% of the US imports come from China would be at completely mercy at China's central bank and its policies unless China is willing to introduce some kind of two-tier currency system for Yuan in that anything that it implements in its digitized version of the currency would not apply to transactions conducted abroad which is very difficult to control and implement as everything will be very fluid and seamless when the currency digitized. So in order to maintain some kind of economic and financial sovereignty, USA would have no choice but to implement some kind of digitized currency system to have more concerted efforts in controlling its own currency and in turn its financial wealth. So slowly our way of life, our democracy is already giving away to dictatorship because we are forced to fight for in essence our sovereignty.

Considering that the government has the ability to control and manipulate the currency and its value anyway it might as well do it more efficiently and swiftly in the face of the second largest economy in the world doing it. The website where one can submit comments actually asks whether there should be some offline capabilities to it for somebody to have the chocie of "opt out" sorta speak. I actually don't think that's a good idea. I mean if the purpose of introducing this digital currency is to manage the US currency effectively and efficiently to counter what China is doing with its currency, then there is no point have these "offline capabilities" of the digital currency; it would defeat the whole purpose of having the digital currency in the first place. It's either all or none. Doing things halfway never works.

Privacy is also a non-issue as we have already lost them when all federal agencies can tap into our financial transactions and records now stored in financial systems anywhere in the world whenever they feel warranted, our privacy is lost anyway. So might as well not make a feigned effort about "preserving privacy" with this digital currency when the purpose of introducing this digital currency was never about "preserving privacy".

 

Over the long term, the Federal Reserve might have to increase the size of its balance sheet to accommodate CBDC growth, similar to the balance-sheet impact of issuing increasing amounts of physical currency

 

But that's not achieving the real intention of the government for having digital currency, I feel. The real intention of creating the digital currency is not to maintain a stable currency level or solid storage of value nor is it to enhance the speed of transactions regardless of what they say on paper. All that could've been achieved via other currency systems or via a system reform. If you really want to have a stable currency level and the currency to be sound storage of value, why don't you bring back the gold standard when currency reserve is backed by real gold that has limited supply. That would be the ultimate achievement of currency price level and storage of value. You don't even need blockchain virtual currency which we see now is neither providing a stable currency value nor storage of value for a currency. It's just another commodity. Stable coin, the reason why it's "stable" is because it's still tethered to the USD which is a fiat currency.

If you really want to facilitate and enhance the speed of electronic transactions, you can achieve that easily with reform of the current system SWIFT and implementation of new electronic payment systems that are already existing. You now have third-party payment systems like Google Pay or Paypal or Apple pay where payment transfers are instant. We can easily expand on that to implement it across all banking and financial institutions in the United States if you really want to make the transfer of funds faster. To create an entirely new digital currency to achieve that is just overkill.

As I said, the real purpose of having a digital currency is 1) To be able to implement monetary policy faster and more effectively since everything that is decided on the digital currency can be applied instantly and not through any ripple effect, 2) to have more control over the monetary policy by possibly bypassing an independent central bank since the Fed in the US does not look after the currency but is responsible for monetary policies and it's the US Treasury under the US government that manages currencies unless it's decided otherwise in its design and 2) To be able to provide a faster and more effective response to other countries' manipulation of their digital currencies that have a direct impact on US due to extensive trading relationship. The rest that's on businesses and consumers is just spin.