US Fed Is Exploring Potential for Digital Currency

In her speech, Brainhard said the Fed was “conducting research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including the potential for a CBDC (central bank digital currency).”

A member of the United States Federal Reserve’s board of governors has signalled that the institution is more open to the idea of central bank digital currency than previously.

Lael Brainard – who chairs several Fed committees – made her remarks during a speech at a symposium on the future of payments at the Stanford Graduate School of Business on Feb. 5.

Debate has taken on a new urgency

Brainhard cited a recent survey by the Bank for International Settlements revealing that as of January 2020, 80% of central banks worldwide are now engaged in some form of CBDC work. That figure is up 10%  from the previous year.

Given the dollar’s important role in global markets, Brainhard argued that it is essential for the Fed to remain “on the frontier of research and policy development regarding CBDC.”

New digital payments, currency and settlement instruments are now proliferating, she observed, singling out Facebook’s Libra project and China’s forthcoming digital yuan as pivotal developments in the private and public sector worldwide.

Twice in her speech Brainhard defined the potential role for CBDCs as being that of maintaining a sovereign currency as the anchor of a given nation’s payment system.

And while she did not explicitly extrapolate this argument to a global scale in the case of the U.S. dollar – whose key role extends well beyond nation-state bounds – she noted the potential impact of new private and public projects:

“For smaller economies, there may be material effects on monetary policy from private-sector digital currencies as well as foreign central bank digital currencies. In many respects, these effects may be the digital version of ‘dollarization,’ with the potential for a faster pace and wider scope of adoption.”

Less than 18 months ago Brainhard had told a Digital Currency Conference in San Francisco that “there is no compelling demonstrated need for a Fed-issued digital currency.

FedNow

Developments like Libra have also prompted calls on the Fed to accelerate its rollout of its forthcoming real-time, 24/7 payments and settlements service, “FedNow.”

While not a full-fledged CBDC, the service is designed to enable consumers and enterprises to manage their funds more flexibly and complete time-sensitive payments outside of conventional banking hours.

US Federal Reserve Hiring Retail Payments Manager to Research Digital Currencies

The U.S. Federal Reserve is hiring a manager to oversee its traditional payments section, while adding new responsibilities to the role, including researching how to integrate digital currencies, stablecoins and distributed ledger technologies.

For months, the central bank’s governors have been hinting at its broader interest in understanding and even issuing a digital currency in the face of corporate stablecoin proposals and national coins abroad, but this hire appears to be the first human resources investment made by the Fed towards integrating the technology into its existing systems.

In a job posted to the Fed’s website on Monday, the role, to be based in Washington, D.C., would manage the Fed’s Retail Payments Section, overseeing check and automated clearinghouse services, facilitating research in retail payments innovation, and addressing policy and regulatory issues concerning retail payment systems.

But besides work related to traditional check payments, automated clearing house (ACH), and cards, the new role would also be charged with:

Facilitating and contributing to innovations research including digital currencies, stable coins, distributed ledger technologies, and broadly financial/digital innovation in retail payments.

In addition to digital currency research, the candidate would contribute to policy and regulations related to retail payments and represent the Board of Governors views with other Board divisions, reserve banks and government agencies.

The highest salary the new hire would be eligible for would be $250,700.

Last month, two U.S. lawmakers sent a letter to Federal Reserve Chairman Jerome Powell, asking the Fed to consider creating a digital currency. The move came after Bank of England governor Mark Carney suggested in August that a central bank-supported digital currency could replace the dollar as the global hedge currency.

Federal Reserve Bank of Dallas President Rob Kaplan has said that the reserve has been studying the potential impact of a Libra-style stablecoin and is “actively looking at and debating” issuance of a digital currency.

The Fed’s study of digital currencies comes just as China’s central bank, the People’s Bank of China, announced that it was close to launching its own digital currency. Mu Changchun, deputy director of the payments unit at the central bank, argued that the digital currency would boost circulation of the Chinese yuan internationally.

A Fed spokesperson could not provide more information about the job posting.

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