The Federal Reserve has been working on digital currency for some time, and Loretta Mester brought that work into public view yesterday. The president of the Cleveland Federal Reserve shared details o
The Federal Reserve has been working on digital currency for some time, and Loretta Mester brought that work into public view yesterday. The president of the Cleveland Federal Reserve shared details of the bank's research after months of exploring the potential of a central bank digital currency.
The Fed started considering CBDCs before the pandemic hit, Mester disclosed in a keynote address. This comes two weeks after the Bahamas announced it would launch the Sand Dollar next month, positioning the island nation as the first country to deploy a sovereign CBDC ahead of major economies.
The Bahamas ran a pilot program for the Sand Dollar last year and plans to introduce it nationwide. The Fed's executives are now "building and testing a range of blockchain platforms to understand their potential benefits and tradeoffs," Mester said. The effort spans multiple Federal Reserve banks. Boston's Federal Reserve Bank signed a multi-year agreement with MIT to research the technology. The New York Federal Reserve partnered with the Bank for International Settlements for similar work.
But Mester wasn't ready to declare victory for a U.S. CBDC. The Fed has significant ground to cover on concerns about "financial stability, market structure, security, privacy, and monetary policy" before moving forward, she said.
The pandemic made these questions more urgent. COVID-19 ravaged the American economy and exposed weaknesses in the nation's payment infrastructure. Millions of workers moved to remote jobs. Millions of consumers shifted their shopping online. These changes rippled through the payments system in massive swings in transfer volumes.
"The spread of COVID-19 heightened the reliance of businesses and individuals on digital services and faster connectivity, as many employees began to work from home and consumers turned to online shopping," Mester said.
The U.S. payments system must survive extreme stress. Making that system resilient demands investment. Mester said policymakers need to keep that investment a core priority.
