The Fed will continue to explore central bank digital currency options

The Federal Reserve has said it has no plans to proceed with a US central bank digital currency (CBDC) unless it has the full support of the executive branch and Congress, ideally under the shape of a “law of authorization”.

In its report assessing the potential benefits and risks of creating a CBDC, the Fed admitted that while it “to best serve the needs of the United States by being privacy-protected, intermediated, widely transferable, and identity-verified”, it could fundamentally change the structure of the US financial system.

The Fed said the model “facilitate the use of existing private sector privacy and identity management frameworks; harnessing the innovative capacity of the private sector; and reduce the risks of destabilizing disruptions to the proper functioning of the US financial system.

However, he also said the creation of a CBDC could have monetary policy implications and present operational resilience and cybersecurity challenges.

The ABA has previously weighed in on the risks associated with issuing a CBDC, warning that issuing a CBDC could compete with bank deposits and limit banks’ ability to fuel economic growth.

The regulator is currently reviewing the document and will provide comments to the Fed in the coming days.

In a statement after the report was released, ABA President and CEO Rob Nichols said: “[The paper] highlights a growing recognition that a US CBDC could fundamentally reshape our banking and payments system which remains the envy of the world, and these implications require careful weighing of the actual costs and benefits before any decision to go ahead. before.

Last August, academics argued that central bank digital currencies could threaten financial stability and privacy.