The US Federal Reserve is exploring the possibility of developing a digital currency that “could be designed for use by the general public”.

Fed chairman Jerome Powell said the central bank plans to publish, this summer, a discussion paper that will explore the implications of fast-evolving technology for digital payments.

The paper will complement Federal Reserve System research that is already underway. It will focus on the possibility of issuing a US central bank digital currency (CBDC).

“As the central bank of the United States, the Federal Reserve is charged with promoting monetary and financial stability and the safety and efficiency of the payment system,” he said.

“In pursuit of these core functions we have been carefully monitoring and adapting to the technological innovations now transforming the world of payments, finance, and banking.”

This technology, he said, offers new possibilities to central banks—including the Fed.

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“A CBDC would raise important policy and legal considerations”

As the Federal Reserve explores the potential benefits and risks of CBDCs, the key focus is on whether and how a CBDC could improve on the US domestic payments system in its ability to serve the needs of households and businesses.

“We think it is important that any potential CBDC could serve as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks,” Powell said.

“The design of a CBDC would raise important monetary policy, financial stability, consumer protection, legal, and privacy considerations and will require careful thought and analysis—including input from the public and elected officials.”

Exploring “the full set of opportunities and risks” of digital currencies

The Federal Reserve System is focused on better understanding “the full set of opportunities and risks” associated with new digital payment mechanisms.

More technically oriented projects, focused on specific tools and infrastructure, are underway at the Board and the Federal Reserve Bank of Boston.

The Fed is also collaborating internationally in groups such as the Bank for International Settlements’ CBDC coalition.