Economists at the Federal Reserve, the U.S. central bank, concluded that their research on digital currencies at central banks did not show whether they were a miracle solution, leaving “many questions” unanswered. Here’s another clue that the Fed should not rush into issuing a digital dollar.
Francesca Carapella, the senior economist in the Fed’s Payments Systems Studies Section, and Jean C. Flemming, also an economist in the same section, wrote on the Fed’s website,
“We believe that the most crucial question is to determine what are the intrinsic characteristics of a CBDC as a means of payment and a store of value for household portfolios”.
And the duo wrote that “empirical studies on consumer payment choices” had already illustrated that “individuals’ preferences for payment methods are heterogeneous and cannot be fully explained by demographic characteristics such as income and age”.
They concluded that “to fully understand the macroeconomic and microeconomic effects of introducing a CBDC in a theoretical framework, it is imperative to first understand consumer payment choice because the CBDC will, first and foremost, expand the range of payment and savings options available to households”.
While the latest report does not constitute a firm yes or no on the issue of issuing a digital dollar, it does seem to indicate once again that the Fed is unlikely to follow China, Western Europe and other East Asian nations in what seems to have become a mad rush to issue a CBDC before its economic rivals.
A number of U.S. proponents of the digital dollar have urged Washington and the Fed to respond to China’s progress on the digital yuan with a similar U.S. plan.
But some are not sure that the CBDC’s plans are well thought out.
Last month, a branch of Deutsche Bank released a report calling for a “reality check” on CBDC issues.
In addition, in October, Global Digital Finance, an organization working on the adoption of digital finance, said the Fed should address 13 major issues before launching a digital dollar, including security, fairness, inclusion, interoperability, and resilience.