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Federal Reserve Board Publishes CBDC Discussion Paper

January 21, 2022


By Gabriel Edelman, Managing Director

On January 20, 2022, the Board of Governors of the Federal Reserve System (“Federal Reserve”) published its long-anticipated whitepaper regarding Central Bank Digital Currencies (“CBDCs”) titled “Money and Payments: The U.S. Dollar in the Age of Digital Transformation.”

The stated goal of the paper was to open lines of discussion with the public regarding CBDCs, which it defined as “a digital liability of the Federal Reserve that is widely available to the general public.”

The whitepaper delineated what a CBDC should accomplish, centered around consumer protection in a form that compliments current forms of money and payment methods. It also summarized the current state of monetary units and payment systems, covering the various innovations throughout history and in recent years. This included a brief review of stablecoins, although it shied away from an in-depth analysis, instead referring to the recently published discussion by the President’s Working Group on Financial Markets. Finally, it delved into the potential benefits and drawbacks of CBDCs.

The whitepaper included an “initial analysis,” stating that “a potential U.S. CBDC, if one were created, would best serve the needs of the United States by being privacy-protected, intermediated, widely transferable, and identity-verified.”  While elaborating on the “intermediated” factor, the Federal Reserve noted that it “does not authorize direct Federal Reserve accounts for individuals, and such accounts would represent a significant expansion of the Federal Reserve’s role in the financial system and the economy.” This is in line with a statement earlier in the month from Federal Reserve Chairman Jerome Powell during his United States Senate confirmation hearing for a second term, where he agreed with Senator Pat Toomey that it was a fair observation that there was “absolutely nothing in the history, the experience, the expertise, the capabilities of the Fed, that lend the Fed to being a retail bank.”

Throughout the paper, the Federal Reserve took pains to remain agnostic regarding the adoption of a United States CBDC, stating that it “is not intended to advance a specific policy outcome and takes no position on the ultimate desirability of a U.S. CBDC.”  It was made clear that this was not “intended to signal that the Federal Reserve will make any imminent decisions.” Rather, this was a preliminary invitation, with “targeted outreach and public forums” to follow.

This whitepaper brings the United States deeper into a global discussion that has already been joined by numerous countries, many of which have already launched CBDCs, including several Caribbean nations, as well as Nigeria.  Additionally, various others are in the pilot stages of exploring this option, such as China, Saudi Arabia, Sweden, Thailand, and South Africa.

There will surely be heated arguments from both industry experts and the public regarding whether a United States CBDC should come to fruition.  The Federal Reserve made it clear that it will listen to all sides, including from within the United States government, stating that it “does not intend to proceed with the issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.” Foreside will continue monitoring the outcome, as the decision will likely have a transformative impact upon domestic and global monetary systems.



This article is not a solicitation of any investment product or service to any person or entity. The content contained in this article is for informational use only and is not intended to be and is not a substitute for professional financial, tax or legal advice.