The Federal Reserve last Thursday issued a highly-anticipated report assessing the potential benefits and risks of creating a U.S. central bank digital currency, or CBDC. The paper also requests public feedback on these topics and comments will be accepted until May 20. While the Fed took no official position on creating a CBDC, the agency said it “will continue to explore a wide range of design options,” adding 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.”

The paper noted that a CBDC “would best serve the needs of the United States by being privacy-protected, intermediated, widely transferable and identity-verified.” Among the various CBDC structures the Fed is contemplating is an intermediated model through which the private sector would facilitate the management of CBDC holdings and payments through accounts or digital wallets. Such a model “would facilitate the use of the private sector’s existing privacy and identity-management frameworks; leverage the private sector’s ability to innovate; and reduce the prospects for destabilizing disruptions to the well-functioning U.S. financial system,” the Fed said.

In an analysis of potential risks, however, the Fed acknowledged that a CBDC could—depending on its design—“fundamentally change the structure of the U.S. financial system, altering the roles and responsibilities of the private sector and the central bank.” In addition, the creation of a CBDC could also have implications for monetary policy and present operational resiliency and cybersecurity challenges, among other things.

The ABA has previously weighed in on the risks associated with issuing a CBDC, warning that the issuance of a CBDC could compete with bank deposits and limit banks’ ability to power economic growth. The ABA is currently reviewing the paper and will provide feedback to the Fed in the coming days. Read the Fed's report. Read ABA's previous CBDC statement.