US Fed Economists Investigating CBDCs’ “Intrinsic” Value Drivers ByAli RazaPRO INVESTOR Last Updated: 10 November 2020 On Monday, the United States Federal Research posted out a new review, showing that it’s starting to broaden its research regarding central bank digital currencies, or CBDCs. Publishing New Literature Review The report itself was titled “Central Bank Digital Currency: A Literature Review.” Within this report, Francesca Carapella and Jean Flemming, two Fed economists, compiled research to explore the potential impact to monetary policy and commercial banking should there be a digital dollar. The review itself thus provides a theoretical underpinning in order to understand how CBDCs could potentially influence financial stability and consumer adoption. The authors explained that the introduction of a CBDC, theoretically speaking, would raise many questions regarding the provision of both private and public money. Another key question is if a central bank has the ability to leverage a CBDC as a means to transmit monetary policy directly to households. The Important Questions To Ask As for what a literature review is, it’s basically just an environmental scan within one topic in particular. This review is, in turn, used to justify the need for additional research, or alternatively disprove the need for it. The report from the Fed made it clear that there were “intrinsic features” of CBDCs that stand as the most important subject to research moving forward. In the review, it was highlighted that a large amount of questions still remain, but the most important ones for the study is how a CBDC can serve as a store of value and a means of payment. The report stated that this is the most important choice for the portfolios of a household regarding which form of money they use on a day-to-day basis. Two Contrasting Ideas The Fed had released an original research paperback on the 13th of August. This paper compared the use of CBDCs with other forms of payment methods. Jesse Leigh Maniff and Paul Wong, the authors of this paper, made the conclusion that a CBDC could never completely replicate real-time gross settlement and cash services. Instead, they advocated that the use of CBDCs could enhance both of these modes of payment. Many have described CBDCs as the new financial arms race, but it seems that the Fed isn’t so keen on describing it as such. Jerome Powell, the Fed Chair, had famously stated that CBDCs aren’t likely to roll out any time soon. According to Powell, the US already boasts an active, safe, dynamic domestic payment system. It seems that Powell is convinced that this system will withstand a complete upgrade in the way the financial system works. All the while, China is working hard to the distribution of its own CBDC, making significant headway.