US Fed Works Intensively on Digital Dollar Legislation

US Federal Reserve Bank of Cleveland
US Federal Reserve Bank of Cleveland

The US Federal Reserve System (Fed) is intensively exploring the idea of digital dollar. In what seems as unspeakable cold war, the US clearly wants to compete with China’s upcoming digital currency (CBDC).

In unprecedented monetary overhaul, the Fed is preparing to deposit “Digital Dollars” directly to “Each American”.

On 23 September, President of the Federal Reserve Bank of Cleveland, Loretta J. Mester, delivered a speech at the 20th Anniversary of the Chicago Payment Symposium, according to News.Bitcoin.

Legislation has proposed that each American have an account at the Fed in which digital dollars could be deposited. Liabilities of the Federal Reserve Banks could be used for emergency payments.

Loretta J. Mester

Due to launching digital cash, the Fed would then be able to scrap “anonymous” physical currency entirely. It can also track every single banknote from its “creation” all through the various transactions that take place during its lifetime.

Other proposals would create a new payments instrument, digital cash, which would be just like the physical currency issued by central banks today, but in a digital form and, potentially, without the anonymity of physical currency.

Loretta J. Mester

Furthermore, some designs of the digital dollar allow the central bank to directly issue the CBDC into end users’ wallets. It will depend on central-bank-facilitated transfer and redemption services, without the involvement of commercial banks.

Fed Techlab

The Fed has a technology lab called “Techlab”. This lab has been building platforms and testing a range of technologies relevant to digital currencies and other payment innovations.

Likewise, the Federal Reserve Bank of New York has established an innovation center in partnership with the Bank for International Settlements. The partnership is to identify critical trends and financial technology relevant to central banks.

As for individual Federal Reserve Banks, Mester also highlighted that the Federal Reserve Bank of Boston is collaborating with the Massachusetts Institute of Technology (MIT) to experiment with existing and new technologies that could be used for a digital dollar.

Finally, it seems that the Fed aims to leverage COVID-19 to produce a more reliable payment system.

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Sally ElShorbagy 25 Articles
Sally ElShorbagy is a freelance journalist and translator who currently covers the future of the cryptocurrencies and the digital economy revolution.