On January 20, 2022, the U.S. Federal Reserve issued its long-anticipated White Paper on the subject of central bank digital currency (CBDC).  Not surprisingly, from the jump, the Fed made clear that this Paper was simply the starting point for opening a dialogue.  The Fed said:

The paper has been designed to foster a broad and transparent public dialogue about CBDCs in general, and about the potential benefits and risks of a U.S. CBDC. The paper is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a U.S. CBDC.

In taking a middle of the road approach, the Fed set out a list of arguments for and against a digital currency.  For example, the Paper said, “While a CBDC could provide a safe, digital payment option for households and businesses as the payments system continues to evolve, and may result in faster payment options between countries, there may also be downsides.”  The Fed gave the following specific example of where digital currency could be an advantage: “As of the second quarter of 2021, the average cost of sending a remittance from the United States to other countries was 5.41 percent of the notional value of the transaction. These high costs have a significant impact on households that make remittance transactions. High costs for cross-border payments also affect smaller businesses that make infrequent global payments to suppliers. Reducing these costs could benefit economic growth, enhance global commerce, improve international remittances, and reduce inequality.”

Along these lines, some Democrats had backed an approach under which individuals would have CBDC accounts directly with the Fed, which they see as a way of helping the unbanked.  But in one of the few areas in which the Paper took a definitive position, the Fed made clear that individual accounts at the Fed were not contemplated.  The Paper explained that the law behind the Fed “does not authorize direct Federal Reserve accounts for individuals, and such accounts would represent a significant expansion” of the central bank’s role in the financial system and the economy.  Rather, CBDC accounts would need to be operated by commercial banks and other service providers, which was probably seen as good news by commercial banks, which were concerned that CBDC accounts directly with the Fed would eat away at their deposit base.

Advocates of the digital dollar had expressed concern that the Fed’s delay in implementing a CBDC will put it behind global competitors, especially China, which has been conducting limited tests of a digital yuan for some time now.  On that issue, the Paper said: “It is important, however, to consider the implications of a potential future state in which many foreign countries and currency unions may have introduced CBDCs. Some have suggested that, if these new CBDCs were more attractive than existing forms of the U.S. dollar, global use of the dollar could decrease—and a U.S. CBDC might help preserve the international role of the dollar.”

Overall though, the Paper remained true to its apparent mission of just opening the debate.  While the Paper mentioned the potential benefits of CBDCs, it also noted numerous concerns, such as privacy rights and the ability to combat illicit finance,  Plus, there are policy concerns, including how a CBDC might affect financial-sector market structure, the cost and availability of credit, the safety and stability of the financial system, and the efficacy of monetary policy.

Finally, the Fed made clear that the path to a CBDC would need to be inclusive from a political standpoint as well.  The Paper said: “The Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.”

The Paper listed a checklist of 22 different items for which it was soliciting public feedback during a 120-day comment period.


David Zaslowsky has a degree in computer science and, before going to Yale Law School, was a computer programmer. His practice focuses on international litigation and arbitration. He has been involved in cases in trial and appellate courts across the United States and before arbitral institutions around the world. Many of David’s cases, including some patent cases, have related to technology. David has been included in Chambers for his expertise in international arbitration. He is the editor of the firm's blockchain blog.