FEDS Note: Preconditions of a general-purpose central bank digital currency

Today, central banks around the world are researching, discussing, experimenting with, and even piloting a new form of digital central bank money. Issuance of any form of central bank digital currency (CBDC) would be a significant undertaking. Decisions on whether to pursue such a payment instrument and how it would be designed would involve many stakeholders to consider the benefits, opportunities, risks, and challenges that it might pose.

To that end, a member of the Payment, Standards, and Outreach Group (PSOG) at the Minneapolis Fed collaborated with two staff members from the Federal Reserve Board of Governors to highlight a set of necessary, though not sufficient, conditions that must exist prior to the introduction of a general-purpose CBDC in the United States. This work, “Preconditions of a general-purpose central bank digital currency,” was recently published as a FEDS Note. The authors identify five foundational elements that must exist before a CBDC could feasibly be issued in the United States. The five preconditions are clear policy objectives, broad stakeholder support, strong legal framework, robust technology, and market readiness.

This work complements other efforts led by PSOG to contribute to emerging payment technology discussions, including “Ten troublesome blockchain terms: What’s accurate, what’s not?” The PSOG division monitors and works on select standards development efforts that advance the Federal Reserve’s mission in payments to foster the integrity, efficiency, and accessibility of the payments system. The group’s core responsibilities include leadership of Federal Reserve industry efforts to improve the efficiency of business-to-business payments.