The President of the Federal Reserve Bank of Cleveland has revealed details of the central bank’s ongoing research into a potential digital dollar. Loretta Mester emphasized that the Federal Reserve has been exploring the central bank digital currencies since before the pandemic, noting that its Board of Governors has been “building and testing a range of distributed ledger platforms to understand their potential benefits and tradeoffs.”
“Initiatives do not signal any decision by the Federal Reserve to adopt such a currency.”
The President noted that initiatives from regional Federal Reserve branches, including a multi-year partnership between the Massachusetts Institute of Technology (MIT) and the Boston Fed, in addition to collaboration between the Fed’s New York Branch and the Bank for International Settlements. However, Mester asserted that the initiatives do not “signal any decision by the Federal Reserve to adopt such a currency,” adding that issues related to “financial stability, market structure, security, privacy, and monetary policy all need to be better understood.”
The President of the Federal Reserve Bank of Cleveland also noted that the COVID pandemic has resulted in significant disruptions to “crucial infrastructure” of the U.S., such as the payments sector had major changes the patterns and volume of domestic transfers.
Central banks continue to explore CBDCs.
Mester stated the importance of “making necessary investments to ensure that the U.S. payments system remains resilient in the face of extreme stress events will need to remain a priority. Central banks across countries are currently working on national digital currencies. The People’s Bank of China is all set to become the first major central bank to issue a national digital currency dubbed DCEP (Digital Currency Electronic Payment). According to the Bank for International Settlements, the ongoing pandemic has exemplified the need for CBDCs around the world.