The US Federal Reserve published a discussion paper on central bank digital currencies or CBDCs, signaling policymakers’ ambitions to start one. CEI expert Paul Jossey, author of a forthcoming report on CBDCs, explains why this is a terrible idea:

“Today the Federal Reserve published a discussion paper and asked for public comment about a possible Central Bank Digital Currency (CBDC), a matter Chair Jerome Powell previously called ‘high priority’ for the U.S. central bank.

“Unfortunately, a CBDC will not solve any problems it purports to. CBDCs would have little effect on financial inclusion, easing cross border payments, or curbing illegal activity.

“Worse, a CBDC would pose big risks to the financial sector, commercial banks, and the overall economy. It would, depending on how it’s designed, threaten the fractional reserve lending system, pose systemic risks in the form of digital bank runs during times of economic stress, and potentially force the Fed to arbitrate contentious social and political issues for which it is ill equipped. Instead, the Fed should encourage the proliferation of stablecoins, which are already solving the problems a CBDC aims at without the attendant risks.”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s