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Federal Reserve Exploring Central Bank Digital Currency (CBDC)

Federal Reserve Exploring Central Bank Digital Currency (CBDC)

  • Experimentation and technical research have been used to investigate CBDC.
  • The Federal Reserve says it is the safest method of expanding payment alternatives.

CBDC, which is expected to be widely accessible, will become the Federal Reserve’s liability instead of ordinary currency, which will be the central bank’s responsibility. Currently, the Federal Reserve has no plans to adopt the CBDC. They’ve been investigating CBDCs’ possible advantages and hazards. Experimentation and technical research have been used to investigate it.

Safest Digital Asset

Even though CBDCs will become a liability for the Federal Reserve, they are still the safest digital asset that the government can provide to the public, according to a Federal Reserve research. As already known, compared to other digital assets, CBDCs have lower liquidity and credit risk.

Although CBDC will not replace paper money or cash, the Federal Reserve says it is the safest method of expanding payment alternatives. The rise in popularity of digital currencies, such as cryptocurrencies and stablecoins, has prompted many to look into the realm of digital assets and CBDCs.

The reserve was compelled to investigate the potential and advantages of CBDCs in light of the flurry of new advancements and product lines, such as digital wallets and payment applications. The Federal Reserve cited some of the advantages of CBDCs, including the simplicity with which families and companies may secure speedier and cheaper payments. The financial market structure and financial system’s stability are jeopardized, though.

For a general-purpose CBDC that might be used by an economy the size of the United States, the Federal Reserve Bank of Boston is working with MIT’s Digital Currency Initiative on a multi-year exploratory research project.

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