The Biden administration is bringing the U.S. a step closer to the creation of a digital dollar.
As part of a series of reports issued by different parts of the administration Friday, an interagency working group will begin meeting regularly to support the Federal Reserve’s ongoing research into the possibility of a central bank digital currency (CBDC), and to prepare the rest of the federal government if or when the Fed decides to create one.
National Economic Council Director Brian Deese and Treasury Secretary Janet Yellen told reporters during a Thursday press call that the White House, Treasury and other executive branch agencies want to do their part to support the Fed’s continued analysis and experimentation with a digital dollar. Separate from a CBDC but related to faster payments services, the Treasury also recommends federal regulators develop a framework for nonbank payment providers, who currently must register state-by-state as money transmitters.
A senior administration official, speaking on background as a condition for answering questions, explained that the U.S. wanted to be in position to issue a CBDC if the Fed decides it’s in the country’s best interest to create one.
Government officials continue to weigh whether a digital dollar would be necessary to keep the dollar competitive with the currencies of countries that are already experimenting with CBDCs, like China. A CBDC acts as a national stablecoin, with instant payments using rails similar to bitcoin, but under central bank control. That raises questions about privacy and whether a digital dollar would radically disrupt the banking sector.
The interagency group will meet regularly to further contemplate those issues.
Administration officials stressed that the decision ultimately will be made by the Fed. The central bank’s point person on the project, Vice Chair Lael Brainard, said last week that a digital dollar isn’t at the top of the Fed’s agenda.
The Fed is continuing to push for real-time payments using non-crypto technology, and plans to launch the service, called FedNow, next summer.
That project has not been without its own controversy, however. Former Fed Vice Chair of Supervision Randy Quarles voted against the project, under the objection that the Fed had told private sector banks to move forward on costly investments to develop their own real-time payments system, under what he argued was the condition that the government wouldn’t create a competitor.
“In a commercial context when you deal with a counterparty that makes promises and then repeatedly breaks them at the last minute and it costs you money, you don’t do business with them anymore,” Quarles said during a panel on CBDCs at last week’s Bank Policy Institute conference in New York City. Quarles, a Republican former Donald Trump appointee to the Fed board dryly added, “and then apparently you elect them president of the United States,” an allusion to Trump’s reported habit of refusing payment to those he hired for work.
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