Brainard: Federal Reserve Sharpening Focus on Central Bank Digital Currency Research

In remarks at a virtual industry event today, Federal Reserve Governor Lael Brainard said the Federal Reserve is sharpening its focus on central bank digital currencies and that it is working on several areas of research about the technology. She also discussed a number of potential benefits a CBDC could offer, including improved efficiencies, increased competition and diversity and lower transaction costs, reduced cross-border frictions, and an increase in financial inclusion.

In any assessment of a CBDC, she noted that it is important to be clear about what benefits a CBDC would offer over and above current and emerging payments options, what costs and risks a CBDC might entail, and how it might affect broader policy objectives.

In a partnership with the Massachusetts Institute of Technology, the Fed is working on building and testing a hypothetical digital currency platform to research the feasibility of the core processing of a CBDC, Brainard said. Future work with MIT will explore how addressing additional requirements, including resiliency, privacy and anti-money laundering features, will affect core processing performance and design.

Brainard said the Fed’s TechLab group is working on research and experimentation about potential future states of money, payments and digital currencies. A second group at the Fed, the digital innovations policy program, is considering a broad range of policy issues associated with the rise of digital payments, including the potential benefits and risks associated with CBDC.

To explore the broader issues around CBDC, the Federal Reserve is also undertaking research on financial inclusion. The Federal Reserve Bank of Atlanta is launching a special committee on payments inclusion to ensure that cash-based and vulnerable populations can safely access and benefit from digital payments, while the Federal Reserve Bank of Cleveland is launching an initiative to explore the prospects for CBDC to increase financial inclusion.