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Why the Fed is considering a cash-backed cryptocurrency


The Federal Reserve is investigating the potential of a central bank digital currency (CBDC) as the backbone for a new, secure real-time payments and settlements system.

The move toward a form of government-backed digital currency is being driven by Fintech firms and a banking industry already piloting or planning to pilot cash-backed digital tokens, according to Lael Brainard, a member of the U.S. Federal Reserve’s Board of Governors.

“Today, it can take a few days to get access to your funds. A real-time retail payments infrastructure would ensure the funds are available immediately – to pay utility bills or split the rent with roommates, or for small business owners to pay their suppliers,” said Brainard, who serves as chair of the committees overseeing Financial Stability and Payments, Clearing and Settlements.

Immediate access to funds could be especially important for households on fixed incomes or living paycheck-to-paycheck, when waiting for funds to be available to pay a bill can mean overdraft fees or late fees that compound. Similarly, for small businesses, immediate access to funds from a sale to pay for supplies can be a game-changer, Brainard added.

Along with benefits, however, a CBDC would also bring potential risk, said Brainard, who spoke last week at the Symposium on the Future of Payments conference in Stanford, Calif.

“The prospect for rapid adoption of global stablecoin payment systems has intensified calls for central banks to issue digital currencies in order to maintain the sovereign currency as the anchor of the nation’s payment systems,” Brainard said.

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