U.S. Digital Dollar Project FAQs
What is CBDC?
Central Bank Digital Currency (CBDC) is a third form of central bank money to be issued by, and representing a liability of the Federal Reserve, fully fungible with Federal Reserve notes (bank notes or cash) and reserves. A key distinction between CBDC and tokenized bank money is that the former is a liability of the Fed and the latter is a liability of the issuing commercial bank. The issuance of CBDC is to convey confidence that digital financial market infrastructures can offer potential benefits as compared to conventional transfer and settlement systems.
What is CBDC’s purpose?
The purpose of CBDC is to make the dollar a much better and smarter currency to serve all those transacting in dollars at home and abroad. It is to act as a settlement medium on digital financial market infrastructures. It would enable reordering monetary relations allowing direct transfers of money in the digital world without relying upon messaging. It is a natural development amid the increasing digitalization in payments. Further, CBDC creates the option, where desired, to add business logic to money to direct how it is used or provide greater transparency and control in the financial ecosystem.
What are tokens and tokenization?
Tokens are digital representations of an asset, good, right, or currency with properties sufficient to attest and transfer ownership.
Why would a CBDC need to be tokenized?
Tokenization would allow central bank money to be portable and sent as easily as sending a text message. Tokenized central bank money could serve as settlement medium in retail, wholesale transactions, and/or cross border payments.
What is a digital dollar?
U.S. money is expressed in U.S. dollars. A digital dollar is a digital representation of a liability denominated in dollars. Liabilities may comprise Federal Reserve Notes (bank notes, cash) as issued by the Federal Reserve, bank deposits and other financial market liabilities.
Is the digital dollar another version of Libra?
No, the proposed digital dollar would be issued by the Federal Reserve and constitute a liability of the Federal Reserve similar to Federal Reserve Notes (paper currency, including dollar bills). It would thereby constitute an obligation of the United States. Libra, by contrast, is a settlement medium issued by a private entity, the Libra Association. Libra is fixed to a basket of national currencies and will therefore float relative to the dollar.
Would the digital dollar be a new currency?
No, this would be only a new format of Federal Reserve money next to existing dollar bills and coins.
What is the difference between the digital dollar and physical cash?
The digital dollar would exhibit features similar to cash, offering peer-to-peer transactions and finality in payments, and serving as a settlement medium in the digital world. Cash and digital dollars would be fully fungible and interchangeable.
Would a digital dollar replace cash?
No, a digital dollar would co-exist with cash.
Where would a digital dollar be used?
The use cases for a digital dollar comprise retail, wholesale, and international payments. The Digital Dollar Project (the “Project”) will identify the best use cases (and potential pilots) that enhance and complement existing capabilities. A digital dollar would be able to be used across different applications but may not be able to compete with alternative settlement media in every instance.
What’s the risk of not acting, and more specifically, why now?
The architecture of money is changing now amid new payment needs and new actors. Many central banks have been exploring CBDC. Important private initiatives and consumer preferences signal demand for new digital payment solutions. A digital dollar would enable the Federal Reserve to keep pace with change, support financial innovation, provide needed functionalities for new payment needs, advance financial integration and inclusion, and address persistent deficiencies in international payments. It would make the dollar a better currency to serve all those transacting in dollars and help strengthen economic and financial conditions at home and abroad.
Would the U.S. digital dollar be backed by the U.S. Government?
An effective digital dollar should be fully fungible with other Federal Reserve monies and constitute legal tender and be an obligation of the United States.
Would a digital Dollar require new regulation and legislation?
In principle, the digital dollar would be fully covered by existing regulations guiding issuance and circulation of Federal Reserve monies. Additional safeguards may be considered by policymakers to enable or in response to broader utilization of a digital dollar.
How would a digital dollar impact the Federal Reserve’s mandate?
A digital dollar should help strengthen the Fed’s mandate by facilitating effective payments across a broader range of financial market infrastructures domestically and possibly abroad, and thus, offering additional channels for the implementation of monetary policy. The information content of a digital dollar may also help improve the formulation of monetary policy by providing analytics and insights back to the Fed.
Would a digital dollar change the two-tier financial system?
One likely design would aim for a digital dollar to be distributed through the banking system and regulated payment intermediaries. Similar to today, the Fed would issue digital Dollars to the banks in exchange for reserves and the banks would distribute digital dollars to their customers on demand (e.g., similar to how ATMs works today with physical cash).
What technology would support the U.S. digital dollar?
At this stage, the Project will be focused on functionality and identifying high value use cases. Once the requirements are established, the Project will evaluate the best technologies to achieve the intended functionality.
Will CBDC be issued on a blockchain?
The Project will consider appropriate technological approaches to issue a digital dollar in light of identified functional needs or use cases. This would likely involve application of a blockchain or other distributed ledger technologies (DLT) and leverage private sector innovation.
What are the governance considerations around underlying digital infrastructure for a dollar CBDC?
Given the significant involved privacy, conflict of interest, legal, and security considerations in developing CBDC infrastructure, design options and governance standards will be a large area of focus (and differentiator) for the Project.
What are the new functions a CBDC would meet?
For a CBDC to meaningfully complement existing central bank money capabilities, dollar CBDC would need to be portable, easy to send, and allow central bank money to become “smart” (e.g., programmable).
How would a digital dollar protect privacy?
All digital transactions are traceable, similar to debit and credit card transactions. Special provisions and technologies would be used to safeguard privacy when conducting payments in digital dollars and balance appropriate governmental interests subject to legal process.
What is the difference between bank money and central bank money?
Commercial bank money is a liability of the commercial bank and central bank money is a liability of the central bank. Bank monies, including bank deposits and debit cards ,thereby bear the risk of the bank as issuer.
Why is central bank money Unique?
Central bank money is the highest quality and least risky money in any given currency area. It is therefore the preferred settlement medium, particularly for large value payment transactions.
Could the digital dollar be used in retail transactions globally?
An estimated 60 percent of Federal Reserve notes circulate outside the U.S. In principle, access to a digital dollar could also be granted to non-residents.
What is the Digital Dollar Foundation (the “Foundation”)?
The Digital Dollar Foundation is a not-for-profit organization created to encourage public discussion and education about a United States CBDC in order to advance the needs of global financial systems and consumers. The Foundation is led by the Honorable J. Christopher Giancarlo, Charles H. Giancarlo and Daniel Gorfine. J. Christopher Giancarlo is Senior Counsel to the international law firm Willkie Farr & Gallagher and the former Chairman of the U.S. Commodity Futures Trading Commission (CFTC). Charles Giancarlo is the CEO of Pure Storage (NYSE: PSTG), and formerly served in senior executive roles at Cisco Systems (Nasdaq: CSCO) and Silver Lake Partners, the private equity firm. Daniel Gorfine is founder and CEO of Gattaca Horizons LLC, and previously served as the CFTC’s first Chief Innovation Officer and Director of LabCFTC. FTI Consulting, a global business advisory firm dedicated to helping organizations manage change, mitigate risk and resolve disputes, is providing strategic communication support for the Foundation and Project. For more information on the Digital Dollar Project please visit: DigitalDollarProject.org or contact: [email protected].
What is the Digital Dollar Project?
The Digital Dollar Project is a collaboration between the Digital Dollar Foundation and Accenture to advance exploration of a United States CBDC.
Why is the Digital Dollar Foundation collaborating with Accenture?
The Foundation has engaged Accenture as lead architect and technology innovation partner as they have established themselves as a market leader in CBDC. Globally, Accenture’s CBDC work includes engagement with the Bank of Canada, the Monetary Authority of Singapore, European Central Bank, and most recently with the intent of Sweden’s Riksbank to sign an agreement to develop an e-krona CBDC in a test environment.
Why has the Digital Dollar Foundation engaged with FTI Consulting?
The Digital Dollar Foundation is partnering with FTI Consulting for strategic communications support for the Project.
How does the Project intend to engage key stakeholders?
A key element of the exploratory phase will be identifying and cataloguing a broad cross-section of key individual public and private stakeholders and soliciting their input, feedback and engagement.
How can I get involved with the Digital Dollar Project?
As described in the press release, this is the beginning of the exploratory phase and the Project looks forward to engaging with key stakeholders. For questions or comments, please email [email protected].