The Federal Reserve will also conduct targeted outreach and convene public forums to foster a broad dialogue about CBDC. Any CBDC would need to strike an appropriate balance between safeguarding consumer privacy rights and affording the transparency necessary to deter criminal activity. The Federal Reserve will continue to explore a wide range of design options for a CBDC. While no decisions have been made on whether to pursue a CBDC, analysis to date suggests that a potential U.S. The brief is based on a working paper by two of its authors, Jonathan Chiu, senior research advisor at the Bank of Canada, and Russell Wong, senior economist, research division, at the Richmond Fed.
Cash is currently the only central bank money that is available to the general public, and it remains an important and popular means of payment. According to a 2020 survey, U.S. consumers used cash for 19 percent of total transactions (6 percent by value).22 The Federal Reserve is committed to ensuring the continued safety and availability of cash and is considering a CBDC as a means to expand safe payment options, not to reduce or replace them. The U.S. payment system connects a broad range of financial institutions, households, and businesses.
The first architecture processes transactions through an ordering server which organizes fully validated transactions into batches, or blocks, and materializes an ordered transaction history. This architecture durably completed over 99% of transactions in under two seconds, and the majority of transactions in under 0.7 seconds. However, the ordering server resulted in a bottleneck which led to peak throughput of approximately 170,000 transactions per second. Our second architecture processes transactions in parallel on multiple computers and does not rely on a single ordering server to prevent double spends. This results in superior scalability but does not materialize an ordered history for all transactions. This second architecture demonstrated throughput of 1.7 million transactions per second with 99% of transactions durably completing in under a second, and the majority of transactions completing in under half a second.
The storage of immense amounts of personal and financial data in a centralized pool may result in hackers exploiting large sets of data at once. Moreover, third parties, such as law enforcement and surveillance agencies, may share and further utilize personal data and transactions. While fears of privacy intrusions still exist around digital currency, there is optimism that the central bank presents a more attractive solution than cryptocurrency. Cryptocurrency, unlike a digital currency managed by the BoC, is decentralized and remains dependant on cryptography to deter fraud.
CBDC transactions would need to be final and completed in real time, allowing users to make payments to one another using a risk-free asset. Individuals, businesses, and governments could potentially use a CBDC to make basic purchases of goods and services or pay bills, and governments could use a CBDC to collect taxes or make benefit payments directly to citizens. Additionally, a CBDC could potentially be programmed to, for example, deliver payments at certain times.
It also cites loyalty benefits, data harvesting and lower settlement risk as reasons for companies to issue their own tokens. For companies, the authors say that a key benefit is seigniorage revenue – the profit from selling the digital currency. When inflation is low and stable, the costs of issuance mean it is optimal for a company to use existing payment systems. US scrap metal recycling businesses receive, process, recycle and sell varieties of iron and steel, many grades of aluminum, various types of copper and other metals by the ton nationwide on a daily basis.
More research is needed to evaluate the effects of a CBDC on banking markets. Threats to existing payment services—including operational disruptions and cybersecurity risks—would apply to a CBDC as well. Any dedicated infrastructure for a CBDC would need to be extremely resilient to such threats, and the operators of the CBDC infrastructure would need to remain vigilant as bad actors employ ever more sophisticated methods and tactics. Designing appropriate defenses for CBDC could be particularly difficult because a CBDC network could potentially have more entry points than existing payment services.
Many family or corporate-owned businesses pay for received and sold recycling metals in cash (US dollars). Many dollar payments today are made through an electronic funds transfer system managed by the National Automated Clearinghouse Association known as Automated Clearing House (ACH). By breaking transaction processing into steps like creation, authorization, submission, execution, and storing history, CBDC designers can consider the potential roles for intermediaries at each stage, creating opportunities for innovation. As of June 2024, the US Federal Reserve has not decided to transition to a CBDC or supplement its existing monetary system with one. It is researching the effects a CBDC would have on the dollar, the US, and the global economy. Cryptocurrencies and CBDCs can both run on distributed ledgers or blockchains, but the key differences are in who controls the network and how consensus is reached (and if it is needed).
