Discussion: The Optimality of Issuing a Central Bank Digital Currency in the US

Description

Evaluate the accuracy of the following statement.

“The Federal Reserve is currently studying the feasibility /desirability of issuing digital currency dubbed central bank digital currency (CBDC). The hope is that the introduction of such a digital currency will lead to substantial improvement in the payments system. However, under the presumption that the Fed’s decision will ultimately reflect the balance it anticipates will prevail between costs and benefits, it is unlikely that the Fed will begin issuing a CBDC because the potential costs indicated by perceived disadvantages exceed the potential benefits indicated by perceived advantages.”

A thorough evaluation of the statement above should reflect an understanding of what economists mean when they say “payments system” and communicate an appreciation of the current weaknesses/inadequacies of the payments system in the US. Given the foregoing, you should think carefully about how the introduction of a CBDC will address the weakness /inadequacies you identified and thereby strengthen the payments system. This will require that you have clarity on exactly what is a CBDC and that you develop an appreciation of how it might work. What are the disadvantages /potential costs of a CBDC? What is your perception of the balance between the costs and benefits of introducing a CBDC in the US? Should the Fed proceed with introducing a CBDC?

Here are some articles that you are likely to find useful. These articles and some others are contained in a folder in files titled “Central Bank Digital Currencies” that contains several articles on CBDC. As always you should feel free to find your own articles and to do as much research as is necessary to enable you to make meaningful contributions to your group’s discussion.