Federal Reserve Governor Lael Brainard said Thursday the central bank is partnering with Massachusetts Institute of Technology researchers to build and test a digital currency.
The Fed aims to gain a better understanding of digital currencies through the program, Brainard said during a conference sponsored by the Federal Reserve Bank of San Francisco. The monetary authority will also explore the potential of offering a digital equivalent of the US dollar.
The program marks a major step forward for the Fed’s interest in digital currencies. Brainard stressed that the Fed isn’t in a position to issue digital cash yet, as “a significant policy process” is needed to even consider issuing a central bank digital currency. The research will involve a “hypothetical” coin oriented to central bank uses, she added.
“Given the dollar’s important role, it is essential that the Federal Reserve remain on the frontier of research and policy development regarding [central bank digital currencies],” the Fed governor said.
Brainard indicated in February that the Fed was looking further into regulations and protections for digital payments and currencies. The new technology can potentially bring “greater value and convenience at lower cost,” she said then. The governor also hinted at the Fed’s research into potential use cases for digital currencies.
A digital dollar poses its fair share of benefits and risks. Digitizing government payments would accelerate monetary policy’s impact and payouts for programs including unemployment insurance, social security, and direct payments like the recent coronavirus relief checks. Experts also suggest a digital dollar would help prevent tax evasion and money laundering.
Brainard’s Thursday announcement brings the Fed more in line with dozens of central banks around the world. China is moving forward with its own plans to issue a digital coin. The European Central Bank said in 2019 that it will “continue to assess the costs and benefits” of a central bank digital currency, but stopped short of guaranteeing an issuance.