Fed releases long-awaited digital dollar study, but doesn’t take a stance on creating one just yet.

The Federal Reserve on Thursday released its long-awaited study of the digital dollar, exploring the pros and cons of the much-debated issue and soliciting public comment.

Billed as “the first step in a public discussion between the Federal Reserve and central bank digital currency stakeholders,” 40-page sheet of paper avoid all conclusions about a central bank digital currency. The report was originally scheduled for the summer of 2021, but has been delayed.

Instead, it provides a holistic view of benefits such as speeding up electronic payment systems at a time when financial transactions around the world are already highly digitized. Some of the downsides the report discusses are financial stability risks and privacy protection while guarding against fraud and other illegality issues.

“A CBDC could fundamentally change the structure of the US financial system, changing the roles and responsibilities of the private sector and the central bank,” the report states.

Fed President Jerome Powell largely uncommitted in its public comments on CBDCs. The biggest advocate of the concept is the Governor of the Fed Lael Brainard, who has been nominated to serve as vice chair of the Federal Open Market Committee for Policymaking.

Several other Fed officials have expressed skepticism towards the digital dollar, saying the benefits are unclear.

A fundamental difference between the Fed dollar and other digital transactions is that digital currency is currently the liability of commercial banks, while CBDC will be the obligation of the Fed. Among other things, it means that the Fed will not pay interest on funds stored with it, although since that is risk-free, some depositors may prefer to keep their funds at central bank.

The article lists a checklist of 22 different items for which it is soliciting public feedback. There will be a 120 day comment period. Fed officials said the report was the first step in an expansion but did not have a timetable for when it would be completed.

“We look forward to interacting with the public, elected representatives, and a wide range of stakeholders as we examine the positives and negatives of central bank digital currencies in the United States.” Powell said in a statement.

The article released on Thursday noted that “the Fed’s initial analysis suggests that a potential US CBDC, if a CBDC is created, would best serve US needs by being protected. privacy, intermediary, widely transferable, and verified identity.”

However, the Fed is in the process of developing what it advertises as a “24-hour settlement and settlement service”. called Fed Now is expected to appear online in 2023.

However, digital dollar advocates worry that the Fed’s delay in deploying the central bank currency will cause the currency to fall behind its global rivals, namely China, which has moved forward with its own product. There have been suggestions that China’s leadership in this area could eventually threaten the hegemony of the US dollar as the world’s reserve currency.

However, Powell and other Fed officials say they are not concerned with the speed of the project, stressing the need to get it right.

“The introduction of the CBDC will represent an innovation with huge implications for American money,” the report reads. “Accordingly, broad consultation with the public and key stakeholders is essential. This paper is the first step in such a conversation.”

The Fed also stated that it would not proceed without explicit authorization from Congress, preferably in the form of “a specific authorization law.”