US Fed Economists Are Researching The ‘Intrinsic’ Value Drivers Of CBDCs

US Fed economists are researching the ‘intrinsic’ value drivers of CBDCs. In a new analysis that was posted on its website on Monday, the United States Federal Reserve has expanded its study on central bank digital currencies.

In a report titled “Central Bank Digital Currency: A Literature Review,” Fed economists Francesca Carapella and Jean Flemming compile research exploring the potential impact of a digital dollar on commercial banking and monetary policy. The review provides a theoretical underpinning for understanding how CBDCs could influence consumer adoption and financial stability.

The authors wrote, “From a theoretical standpoint, the introduction of a central bank digital currency (CBDC) raises long-standing questions relating to the provision of public and private money […] and the ability of the central bank to use CBDC as a means for transmitting monetary policy directly to households.”

In essence, a literature review is an environmental scan on a single subject which is used to explain the need for further study. The Fed’s report identified the “intrinsic features of CBDC” as the most important research question to tackle moving forward “As with any new literature, many questions remain. We believe the most crucial question is which intrinsic features of CBDC as a means of payment and a store of value are important for households’ portfolio choices as to which monies to use.” 

On Aug. 13, the Fed released an original research paper comparing CBDCs with other payment methods. Authors Paul Wong and Jesse Leigh Maniff concluded that all the features of cash and real-time gross settlement services would “never be able to fully replicate” a CBDC, but that both payment modes could be enhanced.

The Fed is not in a hurry to adopt the digital dollar although CBDCs have been described as the central bank “arms race” of the decade. Fed Chair Jerome Powell said last month that a CBDC is unlikely to be rolled out anytime soon because the U.S. already has a “safe and active dynamic domestic payment system.” 

Powell emphasized that resolving risks to privacy and security is more important than having a first-mover advantage in this space.

[image: Patrick Tomasso]

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