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[dubbed Fedcoin]Boston Fed Staffers Offer Road Map in Digital-Dollar Research Effort
March 31 2021 - 10:51AM

https://ih.advfn.com/stock-market/stock-news/84718579/boston-fed-staffers-offer-road-map-in-digital-doll

Dow Jones News
By Michael S. Derby
The first glimpse of research that could eventually lead to a Federal Reserve digital dollar should arrive this fall, according to people working on the effort.

Some time in the third quarter,
the Federal Reserve Bank of Boston,
working with researchers at the Massachusetts Institute of Technology,

will reveal the first stage of a project that could years down the
road yield a Fed digital dollar,
James Cunha,
the Boston Fed's senior vice president of Secure Payments and FinTech Research, said in an interview last week.

The U.S. central bank is one of many around the world considering the introduction of a digital currency.

Proponents of the idea say digital currencies would offer faster settlements,

cut money-transfer costs or even eliminate them,

and may even have benefits for monetary policy.

But the Fed hasn't offered details about what a digital dollar
-- which some have dubbed Fedcoin -- would look like.

This first stage of the research by the Boston Fed and MIT lays the initial groundwork for a new type of money some have dubbed Fedcoin.

As part of this initial effort, the early version of the computer
code for a potential digital currency will be made available for
public examination.

Fed researchers are trying "understand what's possible,
but also share it because we know many others are interested in the
same questions around the globe," Mr. Cunha said.

After that,
the project will continue to explore different systems,
with software built from the ground up for the purpose,
that could deliver a digital dollar, Mr. Cunha said.

The aim is to see what options are available and then present them
to policy makers, he said in an interview.

Researchers will consider how to balance the speed of any potential system with security,

privacy and the need to protect it from criminals who might seek to exploit it, Mr. Cunha explained.

But the effort is also a rethink of what a dollar can be.

"We tried to sort of throw out the norm and think differently about
how to solve some of these problems," he said.

The Boston Fed staffers'
update on a Fed-issued digital dollar comes as part of a slow moving central bank effort spurred by the rise of private offerings like Bitcoin.

The Fed staffers say their efforts are mindful of private offerings
but don't seek to replicate them.

For instance, the creation of Fed digital dollars wouldn't mimic
the energy intensive mining system seen in some private offerings,
they said.

Few see a near term threat to the dollar's status from private cryptocurrencies.

Central-bank digital currencies, also known as CBDCs,
"are an opportunity for central banks to offer a technologically advanced representation of central bank money for the digital economy,"

said Agustín Carstens, General Manager of the Bank for International Settlements, in a speech text Wednesday.

"The crucial novelty is that CBDCs offer the unique characteristics of central bank money as safe, neutral and final," he said.

U.S. central bank officials have said their primary focus is getting
any digital dollar right, rather than being quick to launch.

They're mindful that in a world where the dollar is the global
reserve currency and private financial firms play a huge role in
the economy, any work on a digital dollar shouldn't compromise the existing regime.

"We don't need to rush this project,
and we don't need to be first to market,"
Federal Reserve Chairman Jerome Powell said last week.

"The real threshold question for us is does the public want or need a new digital form of central bank money to complement what is already
a highly efficient,
reliable and innovative payments arena and system," he said.

Mr. Powell also said a digital dollar is not up the Fed to create
on its own, given the stakes.

"We would not proceed with this without support from Congress," he said.

Mr. Powell has highlighted cybersecurity risks and also noted that
many Americans are attached to old-school paper money, presenting another challenge to a digital dollar.

The San Francisco Fed noted in a report in mid-March that Americans substantially boosted holdings of cash during the coronavirus pandemic,

and said they were not averse to using paper money and coins,
even in an uncertain health environment due to the coronavirus pandemic.

Some academics have worried that central bank digital money and
the accounts that would hold it could risk destabilizing the
broader financial system in times of stress.

As they see it, trouble could flush money out of private banks and
into central bank accounts for safety purposes, hurting private banks.

Official digital money could also make it harder for banks to offer credit, some believe.

Mr. Cunha said the potential system would likely involve digital
dollar holdings being held separately from conventional dollars in
bank accounts,
while banks would likely present both kinds of currency to users in
a unified fashion.

Write to Michael S. Derby at [e-mail]


(END) Dow Jones Newswires

March 31, 2021 10:36 ET (14:36 GMT)

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