Fed economists are exploring the intrinsic value drivers of CBDC

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The Federal Reserve Board released a new review on its website on Monday, stating that it has expanded its research on central bank digital currencies (CBDC).

Federal Reserve economists Francesca Carapella and Jean Flemming compiled a research report “Central Bank Digital Currency: A Literature Review” to explore the potential impact of the digital dollar on commercial banks and monetary policy. This report provides a theoretical basis for understanding how CBDC affects consumer adoption and financial stability.

The author wrote:

“From a theoretical point of view, the introduction of central bank digital currency (CBDC) will cause long-term problems related to the supply of public and private money and the central bank’s ability to use CBDC as a direct means of communicating monetary policy to households.

The “Literature Review” is essentially an analysis of a specific topic to prove whether other research is needed. The Fed’s report identified the “intrinsic characteristics of CBDC” as the most important research problem to be solved in the future:

“Like any new literature, there are still many problems in this report. We believe that the most critical issue is what are the inherent characteristics of CBDC as a means of payment and a store of value, and what kind of currency the family chooses to use in the investment portfolio? Important.”

The Federal Reserve issued a research report on August 13 comparing CBDC with other payment methods. Authors Paul Wong and Jesse Leigh Maniff concluded that CBDC will “never fully replicate” all the features of cash and real-time gross settlement services, but it can enhance both payment methods.

Although CBDC has been called the “arms race” of central banks in the past decade, the Fed is not in a hurry to adopt the so-called digital dollar. Federal Reserve Chairman Jerome Powell said last month that CBDC is unlikely to be launched in the short term because the United States already has a “safe, active, and dynamic domestic payment system.”

Powell emphasized that addressing privacy and security risks is more important than having a first-mover advantage in this field.

At the same time, China has taken a more active approach in launching digital currencies. Last month, the People’s Bank of China completed its large-scale digital renminbi pilot project and distributed online wallets to 50,000 randomly selected consumers.

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