Technology

Why does US Federal Reserve System

Central Bank Digital Currencies also popularly known as CBDCs are a new form of Digital cash. Introduction of these CBDCs is going to wipe out hard cash. CBDCs must not be confused with crypto currencies. These are digital form of currencies issued and backed by central banks. US Federal Reserve System Intend to Create its Own Digital Currency.

Chairman of US Federal Reserve System Jerome Powell in a video message cited the progress of payment technology and stated. “The effective functioning of our economy is not only dependent on people having  firm belief in US dollar but also in the payment systems, banks and other service providers who are engaged in floating of money on daily basis.”

He was of the view that Federal Reserve System is very much focused about adopting innovations and ensuring effective & secure payment modes which provide extensive benefits to American households and businessmen. The central bank digital currency will have vast outreach. It would function like dollar and have widespread acceptance. Digital US dollar is assumed to resemble with already existing currencies i.e. Bitcoin and Ethereum in limited aspects. Individual standing of US digital currency would be recognized uniquely.

Chetan Ahya, the chief economist at Morgan Stanley expressed in his report that 86 % of world’s central banks are engaged in a race of exploring digital currencies. Struggles to introduce Central Bank Digital Currency (CBDCs) are on the go.

Both, China the largest country and Bahamas, the smallest one are leading the digital currency market. China has launched CBDCs in some of its cities as a pilot testing. European Central

US Federal Reserve System plans to introduce its Own Digital Currency. Bank is expected to expose its digital euro very soon. This digital advancement is arising more interest in other countries to move towards a cashless society.

A survey conducted by the “Bank for International Settlements in 2020 shows that almost every central bank of the world has started work on introducing these digital currencies in world market. 60% of the central banks of various countries are working on “Proof Concept Testing while remaining 14% have introduced pilot programme.

Primarily there are some important factors working behind this motive which include:

  • Private payment networks are expanding with constant pace. They are gaining more market share and become the primary means of transaction. Central banks are fore sighting that money can exclusively circulate within these networks. These payment networks are supposed to pose a great threat towards a global monetary system of management.
  • The increase in private money networks may not include unbanked segment of general population. CBDCs backed by central banks can be made broadly available to support more financial inclusivity.

The fed understands the importance of CBDCs. It is studying comparative payment systems and plans to release its product named FedNow in 2023. It is working on the project in collaboration with “Bank for International Settlements. This upcoming move by Fed is expected to resolve a no of issues. It is supposed to solve the problem of need for immediacy in transaction along with bringing unbanked segment in financial network.

Abdul Razzaq

Abdul Razzaq is a freelance writer, digital marketer, tech enthusiast and, educationist from Pakistan. He runs Geekydecade (a Business Marketing Blog) to spread business and marketing awareness among the masses.

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