U.S. legislation proposes that every citizen have an Fed account in which they can store Digital Dollars
The Federal Reserve Bank of Cleveland commented on the digital dollar as a part of the 20th anniversary of the Chicago Payments Symposium.
At the beginning of the videoconference the Federal Reserve Bank first focused on the consequences of the COVID-19 pandemic in the sense of increasing the widespread interest of companies as well as individuals in digital services and faster connectivity.
FRB recognizes that some payment technologies are more resilient, scalable and more flexible to respond to such a rapid changes in user’s behavior. At the same time, however, he adds that the Federal Reserve has been evaluating payment technology for some time and also is investing in cloud technology along with initiatives to modernize platforms.
The President and CEO of the Federal Reserve Bank of Cleveland, Loretta J. Mester stated:
Industry’s efforts to replace decades-old core banking systems with more flexible, resilient, and cloud-friendly platforms, and to integrate the old with the new along the way, may need to be accelerated to ensure that we are prepared for the future.
A Look At The CBDC And The Digital Dollar
The bank again explains that the digital currency has gained increased attention from central banks around the world, mainly due to emergency payments during a pandemic. This has resulted in several proposals such as:
Legislation has proposed that each American have an account at the Fed where digital dollars could be deposited, as liabilities of the Federal Reserve Banks, which could be used for emergency payments.
Another proposal is to create a new payment instrument, digital cash, which will be the same as today’s physical currency, but as proposed, their central banks could support them without the involvement of commercial banks. This would involve the direct issuance into digital wallets through the central bank.
The video conference also mentions the position of the Fed, which has been examining for some time the problems which the digital currency of the central bank can cause. The research involves employees from several reserve banks, Cleveland Fed software developers, as well as the Massachusetts Institute of Technology, which works with the Federal Reserve Bank of Boston.
A very important step is also the establishment of an innovation center, which was established thanks to the FRB of New York and the Bank for International Settlements. This center serves primarily to identify and develop in-depth insights into critical trends and financial technology of relevance to central banks.
According to the FRBOC, these researches are an important part in assessing the very benefits and costs of the central bank’s digital currency, but so far they do not signal any specific decision.
At the end of the conference, a bank spokesman acknowledged that they have learned a lot from the pandemics and found out the importance of investing in the resilience of the payment system, which is likely to face another consequence of the ongoing pandemic.
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