It’s official: The Federal Reserve is toying with the idea of issuing a U.S. digital currency.
In a long-awaited report released last week, the Fed explored the costs and benefits of a government-issued digital currency, but deferred a final decision on whether to move forward. Instead, the Fed is giving the public and other stakeholders until May 20 to share their input before taking further action.
Unlike cryptocurrencies, which are typically created within the private sector and regularly see big price swings, a central bank digital currency (CBDC) would be a digital form of cash that’s issued and backed by America’s central bank. However, whatever move the Fed makes next could “fortify cryptocurrencies or detract from their value,” according to Grant Maddox, a certified financial planner and founder of Hampton Park Financial Planning based in South Carolina. “It depends on the direction our government chooses to take,” he adds.
The Fed was clear in the report that it won’t proceed with the issuance of a CBDC “without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.”
The Fed is attempting to be “politically savvy” as it weighs a digital dollar, says Salman Banaei, head of public policy in North America for crypto data firm Chainalysis. If the Fed had taken a clear stance on the matter, “they would have gotten a lot of political pushback,” says Banaei.
Hours after the report’s release, and amid the stock market’s worst week in nearly two years, Bitcoin and Ethereum saw significant drops. The prices of Bitcoin and Ethereum haven’t been this low since July.
“There are two leading factors influencing the demand for crypto…
