On Tuesday, January 20, the Federal Reserve formally released the discussion on central bank digital currency (CBDC), also known as the Digital Dollar, by issuing a new whitepaper. This is a positive trend, especially given that other industrialised economies have already taken the lead in exploring CBDC projects. The paper only discusses the advantages, disadvantages, and possible costs. However, it does not address whether the Fed should undertake such a project. The Fed has stated unequivocally that it will not pursue a CBDC “without clear support from the executive branch and Congress, ideally in the form of a formal authorising statute.”
According to the whitepaper, the CBDC would be fundamentally different from how typical digital payments function in the United States. While digital transactions are now routed via traditional banks, CBDCs would not be required to do so. The Digital Dollar will function as a digital token with direct central bank claim.
It is comparable to how actual dollars are all “Federal Reserve Notes” owned by the bearer. The Fed report states that they would use an “intermediate model,” in which banks and payment processors would be able to create accounts or digital wallets.
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