The Federal Reserve Bank of Boston is teaming up with the Massachusetts Institute of Technology to develop, test, and research a hypothetical digital currency over a two to three year period.
Federal Reserve Governor Lael Brainard said the Fed is investigating whether a central bank digital currency (CBDC) is safe and effective for widespread use.
“Given the pivotal role of the dollar, it is essential that the Federal Reserve maintains the frontier for CBDC research and policy development,” said Brainard at Bank Innovation Office Hours. San Francisco Federal Reserve. “As part of this research, central banks are exploring the potential of innovative technologies to provide an equivalent digital cash. Like other central banks, we are continuing to evaluate opportunities and challenges, as well as use cases for CBDCs, as a complement to cash and other payment options.
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Boston Fed President Eric Rosengren said they are trying to “determine if they can meet the design requirements of a US central bank digital currency.” If the Fed decides to issue its own CBDC, a legislative process to address all of the legal questions will need to take place.
“Separately, there needs to be an important policy process for reviewing CBDC enactment, with extensive consideration and involvement from other parts of the federal government and a host of other stakeholders. , ”Said Brainard on Thursday.
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A digital currency issued by the Federal Reserve will enter an ever more competitive market. Bitcoin is closing at $ 12,000 and has gained more than 70% since April 1. Other cryptocurrencies like Ethereum, XRP, Tether and Chainlink are also on the rise.
The CBDC will be essentially a centralized, regulated version of a cryptocurrency like Bitcoin. This is interesting because Bitcoin was originally created to outdo central banks and other traditional financial institutions.
Satoshi Nakamoto, the creator of Bitcoin’s mystery, explained in the original whitepaper: “A completely peer-to-peer version of the cryptocurrency will allow online payments to be sent directly from one party to another without being able to use it. No need to go through the financial institution “.
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But this may be why Central Banks are trying to stay ahead of the digital currency trend, as outlined in an article by the Institute and Faculty of Law in the UK last year.
Cryptocurrencies are challenging the traditional pillars of the financial system, and in this context, CBs face the threat of individuals being able to store, spend, the researchers write. and move value without depending on “fiat currency.” “This is a major threat to CBDC’s traditional role in monetary policy and therefore, it’s no surprise that development banks are rallying their momentum to analyze and understand the potential impacts. of the introduction of CBDC. “
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