Federal Reserve Board (FRB) Chair Jerome H. Powell announced on Thursday May 20, 2021, the Federal Reserve plans to publish a discussion paper this summer that will explore the possibility of issuing a U.S. central bank digital currency (CBDC).

According to Powell in a video message, the Federal Reserve has been carefully monitoring recent technological advances that are driving rapid changes regarding payment methods, and has been exploring ways to refine the FRB’s role as a core payment services provider and as the issuing authority for U.S. currency.

In particular, the Federal Reserve is exploring the development and issuance of central bank digital currencies, or CBDCs. The term “central bank digital currency” is not well-defined, and various implementations have been proposed, but in essence, a CBDC is a type of central bank liability issued in digital form. Based on its implementation, a CBDC could be designed for use by the general public as a digital representation of fiat currency.

Powell indicated that the Federal Reserve is primarily focusing on whether and how a CBDC could improve on the U.S. domestic payments system in its ability to serve the needs of households and businesses. “The design of a CBDC would raise important monetary policy, financial stability, consumer protection, legal, and privacy considerations, and will require careful thought and analysis, including input from the public and elected officials”, Powell said.

This is not the first endeavor in the U.S. to seriously study the potential opportunities presented by CBDCs. The Federal Reserve Bank of Boston announced last year a partnership with the Digital Currency Initiative at MIT to explore, build, and test a hypothetical CBDC platform.

Eric Rosengren, president and CEO of the Federal Reserve Bank of Boston (Boston Fed), recently spoke about the topic on a Harvard Law School panel discussion titled “Central Bank Perspectives on Central Bank Digital Currencies,” where he emphasized the “growing need to update our payments system to allow for cutting-edge digitized commerce.” The partnership with MIT, dubbed “Project Hamilton,” is exploratory, however, and is “designed to determine the feasibility of the core processing of a central bank digital currency, while leaving substantial flexibility for the impact of future policy decisions.” Project Hamilton appears to be moving quickly. Rosengren remarked that he anticipates that in early third quarter of this year, MIT and the Boston Fed will release a white paper documenting “the ability to meet reasonable goals with core processing, and create an open source license for the code.”

While any decision to move forward with a CBDC in the U.S. is yet to be made and would depend on a variety of factors beyond technological feasibility, these efforts at the Federal Reserve and Boston Fed demonstrate serious attention to, and consideration of, the possible implementation of a CBDC.

Stay tuned to this blog for updates on CBDCs and other blockchain developments. Click here to learn more about our Blockchain and Digital Currencies Group.

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Christopher L. Boone

Chris Boone focuses his practice on regulatory issues related to payment processing, blockchain, advertising and marketing, transportation, and telecommunications. Chris provides counsel on regulatory compliance, contract negotiations, and general business matters. He also regularly assists clients in responding to federal and state investigative…

Chris Boone focuses his practice on regulatory issues related to payment processing, blockchain, advertising and marketing, transportation, and telecommunications. Chris provides counsel on regulatory compliance, contract negotiations, and general business matters. He also regularly assists clients in responding to federal and state investigative inquiries, demands, and complaints from the Federal Trade Commission (FTC), the Federal Communications Commission (FCC), state attorneys general, and other federal and state authorities.

Ed Wilson

Ed Wilson has a broad practice assisting private and government parties in complying with – and shaping – the laws and policies governing interactions with the federal government in the areas of financial services, blockchain technology, domestic and non-U.S. investments in national security-related…

Ed Wilson has a broad practice assisting private and government parties in complying with – and shaping – the laws and policies governing interactions with the federal government in the areas of financial services, blockchain technology, domestic and non-U.S. investments in national security-related industries, political activities, and government contracting. He previously served as deputy and acting general counsel at the U.S. Treasury Department, and held other, senior positions at the Executive Office of the President and the Treasury.