CBDC is a central bank’s digital liability readily accessible to the general public. Federal Reserve notes (i.e., real cash) are the only significant bank money accessible to the general public in the United States today. A CBDC, like other kinds of money, would allow the general public to make cashless transactions. A CBDC, on the other hand, as a Federal Reserve obligation, would be the safest digital asset available to the general public, with no credit or liquidity risk.
The Central Bank has released a fact sheet that explores the benefits and drawbacks of a potential CBDC in the United States. We’re looking for public input on various CBDC-related issues as part of this process. The Federal Reserve is dedicated to hearing from a broad spectrum of people on these issues.
Is congress setting the ground for CBDC?Congress currently has an ACT that mandates the Federal Reserve Bank to research the impact of CBDC. This points to signs of its adoption shortly. The Central Bank Digital Currency Study Act of 2021 explores all angles of the CBDC, ranging from the digital currency’s adoption rate in other states. The ACT gives authority to the Federal Reserve System’s Board of Governors, in collaboration with the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Department of the Treasury, the Securities and Exchange Commission, and the Commodity Futures Trading Commission, to conduct a study on the impact of a CBDC on a range of issues such as
Overall benefits of CBDC in the US
Improves cross-border payments: CBDCs have the potential to enhance the current slow and expensive cross-border payment system. However, the report warns that achieving this would require extensive international cooperation to secure shared standards and facilities and a legislative structure to prohibit illegal operations and agree on the number of participants, costs, and execution.
Inspiring Creativity A CBDC might make it fairer for fintech innovations and establish the groundwork for private-sector remedies to address present and future payment-related demands. The costs of developing a secure and reliable form of private money are currently prohibitive. Smaller firms may be able to create new services and distribution methods based on the CBDC. A CBDC could also do functions that existing digital currency cannot. It could, for example, be programmable, allowing payments to be made on a predetermined schedule or based on the fulfillment of particular conditions, and it could be a cost-effective means to conduct high-volume micropayments.
Inclusion in the Financial System A CBDC might lower transaction costs and remove barriers to financial inclusion, which would benefit low-income households. Further research is needed to determine how successfully CBDCs can boost financial inclusion, according to the paper. With the Federal Reserve exploring reliable ways to launch the CBDC, Ahrvo Comply can offer decentralized KYC/AML solutions that can help with compliance.