A new paper published by the Federal Reserve on Wednesday lays out some of the preconditions by which the U.S. central bank might consider launching a digitized version of the dollar.
The listed preconditions are perhaps unsurprising; the paper's authors Jess Cheng, Angela Lawson, and Paul Wong highlighted "clear policy objectives, broad stakeholder support, strong legal framework, robust technology, and market readiness" as "high-level environmental preconditions that support a general-purpose CBDC in the United States."
The trio stressed that "[t]hese areas and elements are not exhaustive because many systems, tools, processes, and structures will need to be in place for a CBDC." However, they offer a window into where the Fed's internal lines of inquiry are pointing on the question of a digital dollar -- all the more relevant given that, per Fed chair Jerome Powell, the Fed to "engage with the public pretty actively" on the subject of a central bank digital currency (CBDC).
Indeed, the paper is positioned as a jumping-off point for further discussion rather than a definitive bellwether for future Fed action.
"For example, engaging with a broad array of stakeholders and monitoring market readiness could inform clear policy objectives and vice versa. This paper does not attempt to prescribe how to address these preconditions; it aims to spark further inquiry," the authors note.
Among other areas, the paper echoes a comment from Powell about whether the legal framework by which the Federal Reserve operates may need to be altered to account for the creation of a CBDC.
As authors write: "Consideration would need to be given as to whether additional amendments to the [Federal Reserve Act] would be required related to the issuance of a general-purpose CBDC."
The section on stakeholder support is also notable for its breadth, with the paper highlighting how a broad range of public and private-sector participants would be impacted -- and how a successful CBDC might require a degree of buy-in. That said, recent comments from payments firms like PayPal and Mastercard suggest that the positioning for a Fed-backed CBDC may already be happening in the private sector.
Ultimately, the authors conclude that a significant amount of work remains before the Fed decides whether -- and how -- it might move forward on a CBDC.
"Issuing a CBDC in the United States would not be an easy task. A number of foundational elements would be required," the authors write.
Read the full Fed paper here.