The path to the Federal Reserve’s central bank digital currency (CBDC), or Fedcoin, continues to be played out before the public. This time, Fed vice chair for supervision Randal K. Quarles gave a speech Monday sharing his general ideas. His conclusions are interesting:
First, the U.S. dollar payment system is very good, and it is getting better. Second, the potential benefits of a Federal Reserve CBDC are unclear. Third, developing a CBDC could, I believe, pose considerable risks.
However, the benefits of a new technology being unclear or the high risks never stopped the development of technology before. He goes on to say:
Even if other central banks issue successful CBDCs, we cannot assume that the Federal Reserve should issue a CBDC. The process that Chair Powell recently announced is a genuinely open process without a foregone conclusion.
While he seems sincere when noting the risk, it’s unlikely that a future would exist where other central banks would have a CBDC but the Fed would not. Whether central bankers make it appear as though a debate is ongoing, the public should be prepared that one day, given the inevitable progress of technology and general fear of missing out, one day there will be a Fedcoin.
The question remains: What will Fedcoin look like? So far, not good.
Vice Chair Quarles foreshadows things to come, providing a few ways the coin could be used:
One is an account-based model, in which the Federal Reserve would provide individual accounts directly to the general public. Like the accounts that the Federal Reserve currently provides to financial institutions, an account holder would send and receive funds by debit or credit to their Federal Reserve account.
Consider a future where you could deposit and withdraw funds at your local Federal Reserve branch. It would put the consumer one step closer to the newly created money, skipping their local bank entirely! Whether it would function through direct payments from the Fed to the public or the individual would be able to borrow funds from the Fed has yet to be seen.
He also mentions:
A different CBDC model could involve a CBDC that is not maintained in Federal Reserve accounts. This form of CBDC would be closer to a digital equivalent of cash. Like cash, it would represent a claim against the Federal Reserve, but it could potentially be transferred from person to person (like a banknote) or through intermediaries.
Under this method, it seems as though they would create a parallel US dollar to circulate digitally …
It’s all quite fantastic! The supervisor even admits:
I am skeptical that the Federal Reserve has legal authority to pursue either of these CBDC models without legislation. Nevertheless, the recent clamor over CBDCs makes it appropriate to explore the benefits, costs, and practicalities of implementing one in the United States if such legislative authority were granted.
The problem, for all that can be debated, contemplated, and discussed in the public eye, is the uncertainty. Technology has a way of progressing and legislation changes to suit the government’s needs. While no one has formally detailed how exactly Fedcoin will function in society, we know it’s only a matter of time until it does; when that comes, further increases to the money supply, and more government control over the supply of money will come with it.
