Money and Payments: The U.S. Dollar in the Age of Digital Transformation

[odolvlobo]

The Federal Reserve has released their white paper on CBDCs.

Money and Payments: The U.S. Dollar in the Age of Digital Transformation

The Federal Reserve is asking for comments on their paper, so it is my intention to take the most notable points in the comments below and submit them to the Federal Reserve.

The Executive Summary introduction:

For a nation’s economy to function effectively, its citizens must have confidence in its money and payment services. The Federal Reserve, as the nation’s central bank, works to maintain the public’s confidence by fostering monetary stability, financial stability, and a safe and efficient payment system.

This paper is the first step in a public discussion between the Federal Reserve and stakeholders about central bank digital currencies (CBDCs). For the purpose of this paper, a CBDC is defined as a digital liability of a central bank that is widely available to the general public. In this respect, it is analogous to a digital form of paper money. The paper has been designed to foster a broad and transparent public dialogue about CBDCs in general, and about the potential benefits and risks of a U.S. CBDC. The paper is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a U.S. CBDC.

Note: This topic is moderated. Comments that are not related to the white paper will be removed.

[odolvlobo]

Privacy-protected: Protecting consumer privacy is critical. Any CBDC would need to strike an
appropriate balance, however, between safeguarding the privacy rights of consumers and affording
the transparency necessary to deter criminal activity.

The problem is that privacy can never be guaranteed unless the "balance" is permanently fixed. Otherwise, it can be changed at any time at the whim of the current government. With the current trend of financial surveillance toward 100% of all transactions, I don't see any hope of any balance at all.

Intermediated: The Federal Reserve Act does not authorize direct Federal Reserve accounts for individuals, ... Potential intermediaries could include commercial banks and regulated nonbank financial service providers, ... Although commercial banks and nonbanks would offer services to individuals to manage their CBDC holdings and payments ... An intermediated model would facilitate the use of the private sector’s existing privacy and identity-management frameworks; leverage the private sector’s ability to innovate; and reduce the prospects for destabilizing disruptions to the well-functioning U.S. financial system.

The intended difference between a CBDC and the current monetary system really boils down to one thing -- finality of payments. However if all payments must go through intermediaries, then there really is no finality as the intermediaries could undo any payments at any time.

Identity-verified: ... A CBDC would need to be designed to comply with [rules designed to combat money laundering and the financing of terrorism]. In practice, this would mean that a CBDC intermediary would need to verify the identity of a person accessing CBDC, just as banks and other financial institutions currently verify the identities of their customers.

That's a non-starter for me. Already the "balance" of privacy vs. security is non-existent. It also restricts access to persons and only those who are identifiable.

[hatshepsut93]

The intended difference between a CBDC and the current monetary system really boils down to one thing -- finality of payments.

There's no way anyone would make a CBDC with non-reversible payments. I think the whole point of CBDC is to give more financial power to government, so they won't have ask private companies for data on certain clients or to freeze certain accounts or transactions, but instead would just do it all on their own whenever they want. Basically a state-owned competitor for Visa and Mastercard.

The Federal Reserve will continue to explore a wide range of design options for a CBDC.

They don't really need crypto and blockchain for that, and such ideas existed before Bitcoin was even created, back then it was called just "digital currency".

Unlike shitcoin projects that make unrealistic promises, the Fed would actually be held accountable, so they would need to really solve the problems of scaling and high fees, and currently it would mean that the design would have very little in common with existing cryptocurrencies.

[paxmao]

The intended difference between a CBDC and the current monetary system really boils down to one thing -- finality of payments.

There's no way anyone would make a CBDC with non-reversible payments. I think the whole point of CBDC is to give more financial power to government, so they won't have ask private companies for data on certain clients or to freeze certain accounts or transactions, but instead would just do it all on their own whenever they want. Basically a state-owned competitor for Visa and Mastercard.

The Federal Reserve will continue to explore a wide range of design options for a CBDC.

They don't really need crypto and blockchain for that, and such ideas existed before Bitcoin was even created, back then it was called just "digital currency".

Unlike shitcoin projects that make unrealistic promises, the Fed would actually be held accountable, so they would need to really solve the problems of scaling and high fees, and currently it would mean that the design would have very little in common with existing cryptocurrencies.

I see it differently. Firstly, the payments would need to be reversible as much as a bank transfer can be reversed in the case of errors, hacks or robbery. Second, Visa and Mastercard, Paypal and other are effectively payment processors that need to operate a high speed and cover for defaults, fraud and misuse. I am not sure there is any intention of using a centrally issued currency for that.

In any case, I agree, this has little to do with cripto as we know it.

[DooMAD]

Some have suggested that a CBDC could reduce common barriers to financial inclusion and could
lower transaction costs, which could be particularly helpful for lower-income households. Further
study would be helpful to assess the potential for CBDC to expand financial inclusion, including
cases targeted to underserved and lower income households.

This part sounds overly optimistic.  If one of the largest barriers to financial inclusion for the unbanked is a lack of ID, then creating a new type of digital money with the same KYC/AML requirements doesn't remedy that issue.  Neither would it solve the problem of those who simply have a general lack of financial literacy.  What common barriers are they referring to?  And, aside from remittances and other international payments, I'm not sure which transaction costs they believe would be lower.