In prepared remarks at an event hosted by CoinDesk, Fed governor Lael Brainard laid out several potential benefits of central bank digital currencies, noting that the Fed is "stepping up" its research and public engagement on a digital version of the U.S. dollar.
"While the large majority of pandemic relief payments moved quickly via direct deposits to bank accounts, it took weeks to distribute relief payments in the form of prepaid debit cards and checks to households who did not have up-to-date bank account information with the Internal Revenue Service," Brainard said.
"The challenges of getting relief payments to these households highlighted the benefits of delivering payments more quickly, cheaply, and seamlessly through digital means," she continued.
In her remarks, Brainard highlighted the benefit of increasing financial inclusion. "Today 5.4 percent of American households lack access to bank accounts and the associated payment options they offer, and a further 18.7 percent were underbanked as of 2017," she noted.
Central bank digital currency may be one part of a broader solution to the challenge of achieving ubiquitous account access, and depending on the design, it may have the ability to lower transaction costs and increase access to digital payments, she said.
Besides, central bank digital currency could improve efficiency, promote competition and diversity, and reduce cross-border frictions.
"Digitalization, along with a reduction in the number of intermediaries, holds considerable promise to reduce the cost, opacity, and time required for cross-border payments," she said.
While the introduction of central bank digital currencies may be part of the solution, international collaboration on standard setting and protections against illicit activity will be required in order to achieve material improvements in cost, timeliness, and transparency, she added.
The Fed governor noted it is important to be clear about what benefits a central bank digital currency would offer over and above current and emerging payments options, what costs and risks it might entail, and how it might affect broader policy objectives.
Brainard's comments come just a few days after Fed Chairman Jerome Powell announced that the central bank this summer would publish a discussion paper on the potential benefits and risks of issuing central bank digital currencies in the United States.
The FedNow Service, a new instant payments infrastructure that would resemble a digital dollar, is scheduled to go into production in two years.
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