- Nov 26, 2011
- Reaction score
CBDC = Cental Bank Digital Currency.
The Federal Reserve is exploring the implications of, and options for, issuing a CBDC. For the purpose of this paper, a CBDC is defined as a digital liability of the Federal Reserve that is widely available to the general public. While Americans have long held money predominantly in digital form—for example in bank accounts recorded as computer entries on commercial bank ledgers—a CBDC would differ from existing digital money available to the general public because a CBDC would be a liability of the Federal Reserve, not of a commercial bank.
The Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.
The existing forms of money:
• Central bank money is a liability of the central bank. In the United States, central bank money comes in the form of physical currency issued by the Federal Reserve and digital balances held by commercial banks at the Federal Reserve.
• Commercial bank money is the digital form of money that is most commonly used by the public. Commercial bank money is held in accounts at commercial banks.
• Nonbank money is digital money held as balances at nonbank financial service providers. These firms typically conduct balance transfers on their own books using a range of technologies, including mobile apps
Cryptocurrencies have not been widely adopted as a means of payment in the United States. They remain subject to extreme price volatility, are difficult to use without service providers, and have severe limitations on transaction throughput.13 Many cryptocurrencies also come with a significant energy footprint and make consumers vulnerable to loss, theft, and fraud.
Amen! Cryptocurrencies are nothing more than speculative vapor. They are as volatile as the price of natural gas.
Cash is currently the only central bank money that is available to the general public, and it remains an important and popular means of payment. According to a 2020 survey, U.S. consumers used cash for 19 percent of total transactions (6 percent by value).22 The Federal Reserve is committed to ensuring the continued safety and availability of cash and is considering a CBDC as a means to expand safe payment options, not to reduce or replace them. In some jurisdictions, however, digital payments have rapidly supplanted cash. While cash use in the United States fell from 40 percent of transactions in 2012 (12 percent by value) to 19 percent in 2020, other countries have seen more rapid declines.
Something which occurred to me while I was reading this paper:
A CBDC could fundamentally change the structure of the U.S. financial system, altering the roles and responsibilities of the private sector and the central bank.
Banks currently rely (in large part) on deposits to fund their loans. A widely available CBDC would serve as a close—or, in the case of an interest-bearing CBDC, near-perfect—substitute for commercial bank money. This substitution effect could reduce the aggregate amount of deposits in the banking system, which could in turn increase bank funding expenses, and reduce credit availability or raise credit costs for households and businesses.27 Similarly, an interest-bearing CBDC could result in a shift away from other low-risk assets, such as shares in money market mutual funds, Treasury bills, and other short-term instruments. A shift away from these other low-risk assets could reduce credit availability or raise credit costs for businesses and governments.
These concerns could potentially be mitigated by CBDC design choices. A non-interest-bearing CBDC, for example, would be less attractive as a substitute for commercial bank money. In addition, a central bank might limit the amount of CBDC an end user could hold.
Something else which occurs to me is that when you buy hookers and blow with Federal Reserve notes (cash), the government can't track that.
But if the Fed issued digital currency, they would be able to monitor all financial transactions which use that method.
The Fed's paper addresses this, too:
Consumer privacy: A general-purpose CBDC would generate data about users’ financial transactions in the same ways that commercial bank and nonbank money generates such data today. In the intermediated CBDC model that the Federal Reserve would consider, intermediaries would address privacy concerns by leveraging existing tools.
Prevention of financial crimes: Relatedly, financial institutions must comply with a robust set of rules that are designed to combat money laundering and the financing of terrorism. These rules include customer due diligence, recordkeeping, and reporting requirements. As noted above, any CBDC would need to be designed in a manner that facilitates compliance with these rules. Intermediated models for a U.S. CBDC have the distinct advantage of involving private-sector partners with established programs to help ensure compliance with these rules.
So what do you guys think about this?
The Fed is seeking input from the public.
Please provide any answers to questions by May 20, 2022, using the form at https:// www.federalreserve.gov/apps/forms/cbdc. It is not a requirement that all questions be answered.