In a bid to deliver the best to compete with the Chinese model and possibly retain the dollar global reserve currency status, the Fed is working closely with other institutions.
The Fed through the Federal Reserve Bank of Cleveland released a detailed work plan indicating how it anticipates seeing the payment systems updated amid the coronavirus pandemic. According to Loretta J. Mester, President and CEO of the Federal Reserve Bank of Cleveland, who spoke during the 20th Anniversary Chicago Payments Symposium, there are plans to digitize the dollar through the blockchain technology.
This is now a new thing as China, United States’ biggest trade rivalry, is already rolling out its digital yuan and already implemented in a number of government services.
Global central banks are rushing to implement the best model of CBDC that will integrate both retail consumers and commercial banks. This comes as the entire cryptocurrency industry faces a new phase of adoption with institutional investors greatly interested in projects like Bitcoin, Ethereum, Bitcoin Cash and also XRP among many others.
In addition, the cryptocurrency market has seen a new growth especially with the stablecoins and also DeFi focused projects.
However, with the level of anonymity associated with most crypto projects, governments are keen to come in and regulate them. This is in a plan to control cybercrime that has benefited with the development of digital currencies, as seen with the dark web markets.
Payment Systems Update: Digital Dollar Model Proposed by the Fed
According to Loretta, plans are underway to create a system that can allow every American to access emergency funds from the government directly into their digital wallets.
“Legislation has proposed that each American have an account at the Fed in which digital dollars could be deposited, as liabilities of the Federal Reserve Banks, which could be used for emergency payments,” Loretta explained.
However, he cautioned that further research need to be conducted in order to ensure the best system is implemented to serve in the best interest of all stakeholders.
“The demand for and use of such instruments need further consideration in order to evaluate whether such a central bank digital currency would allow for quicker and more ubiquitous payments in times of emergency and more generally. In addition, a range of potential risks and policy issues surrounding central bank digital currency need to be better understood, and the costs and benefits evaluated,” Loretta stated.
In a bid to deliver the best to compete with the Chinese model and possibly retain the dollar global reserve currency status, Loretta revealed that the Fed is working closely with other institutions.
“The Federal Reserve has been researching issues raised by central bank digital currency for some time. The Board of Governors has a technology lab that has been building and testing a range of distributed ledger platforms to understand their potential benefits and tradeoffs.9 Staff members from several Reserve Banks, including Cleveland Fed software developers, are contributing to this effort. The Federal Reserve Bank of Boston is also engaged in a multiyear effort, working with the Massachusetts Institute of Technology, to experiment with technologies that could be used for a central bank digital currency,” he said.