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• Fed to launch a report this week to review different factors in creating Digital Dollar
• The report is due expected since July of this year
• Last week, Powell said the development of CBDC is a critical work
The U.S Federal Reserve is planning to launch a review of potential risks and prospects of introducing a digital currency as early as this week, the Wall Street Journal reported on Monday.
The Fed officials will release a paper soliciting public comment on the launching of a central bank digital currency (CBDC). However, the report said officials are divided in opinions between benefits and risks associated with creating a digital dollar, making it unlikely that the government will decide any time soon on the matter.
Unlike unregulated and decentralized cryptocurrencies like Bitcoin, a Fed version would be issued and backed by the U.S. central bank, just like U.S. paper Dollar bills and coins.
Delay in publishing report
The expected date for the publication of the report has been postponed several times. While the review was anticipated to publish in July, Fed Chair Jerome Powell later said it would come in early September during a hearing before the U.S. House Committee on Financial Services.
However, in late September, Powell said the decisive assessment will help determine if there are “clear and tangible benefits that outweigh any costs and risks.”
Furthermore, another paper by the Federal Reserve Bank of Boston, and the Massachusetts Institute of Technology, may cover technical aspects of the Digital dollar, highlighting the operations’ structure.
Difficulties in creating CBDC
Technically, although the digital Dollar can be used alongside traditional fiat money, there are several unclear factors like how people would access the digital currency and how it would fit into the conventional financial system.
For instance, the Chair of the fintech and regulation practice at Nelson Mullins Riley & Scarborough LLP Richard Levin told WSJ that the Fed would have to decide how to provide the digital Dollar to the customer. Whether through direct accounts with the central bank or through existing commercial lenders.
Moreover, last week, Powell denoted that the development of the CBDC as a “critical work” during a Senate Banking Committee hearing and also said that it would require legislation from Congress to proceed further.
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