Episode 19 - What would it mean if the Fed creates a Central Bank Digital Currency?
I need to start off by saying this is not financial advice so if you are looking for that this show isn’t for you. The content of this podcast episode is for informational purposes only. The opinions expressed here are not meant to be taken as financial, investment, or any other advice.
Recently the Federal Reserve came out and stated that it is beginning the talks over whether or not they should create a Central Bank Digital Currency or CBDC and how it could improve a safe and effective domestic payments system. With this news coming out, there’s been a big heated debate about what this would ultimately entail. As it tries to figure out how to keep cash relevant in a cashless digital world. And we need to be clear that there is no determined date at the moment for this, and if they do say yes to this we don’t actually know when this will come to fruition. There is a MIT and Boston Fed test project in the works called Project Hamilton which is a high performance payment system specifically designed for a CBDC but again this is really just in the early phases.
If we do see a CBDC we would most likely see a direct bank account given to each U.S. citizen that the Fed would have access to to deposit funds. Think exactly like a banking app but with the Fed. China, for example, allows digital yuan payments in the cities in which the country is piloting its digital currency, and it allows citizens to make payments via an app set up by the government.
So many questions arise with this. Will stable coins survive if this happens? How would a US digital coin work with being centralized? What regulations and restrictions could be issued with this? How would this affect cryptocurrencies as a whole? One of the biggest concerns is what about privacy? Add in the differing opinions on all sides with it and it becomes a bit of cluster and confusion.
So let's take a look at what this all means.