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TCH Publishes Paper Outlining Challenges and Opportunities of a U.S. Central Bank Digital Currency

The Clearing House Association (TCH) published a paper on Central Bank Digital Currency (CBDC) titled "On the Road to a U.S. Central Bank Digital Currency - Challenges and Opportunities." The paper defines CBDC, identifies significant design and implementation choices that might be made in the U.S., discusses implications of these design and implementation choices, and provides a perspective on various policy and legal considerations relevant to the establishment of a U.S. CBDC. The paper also highlights different approaches central banks are taking around the world with respect to CBDCs, and identifies noteworthy events in the CBDC discourse in the U.S. 

The Clearing House makes a number of recommendations and observations about a potential U.S. CBDC, including the following: 

Purpose of CBDC: Policymakers should articulate a clear purpose for a U.S. CBDC, as doing so will inform other design choices that will need to be made to ensure that the stated purpose is being advanced.  A clear purpose also enables policymakers to determine if there are other, less risky means available to meet the stated purpose. 

Treasury and Federal Reserve study: Policymakers should continue to proceed cautiously.  The Treasury Department and Federal Reserve should conduct a joint study of the specific purpose for which a U.S. CBDC would be implemented that identifies the likely impact it would have on monetary policy, financial stability, the safety and soundness of the financial sector, the impact on the efficiency of U.S. payment systems and financial crimes and sanctions evasion, and if there are other, less risky means of achieving the purpose.

Strong Legal Foundation: Current U.S. law is not likely sufficient to support a CBDC and the introduction of a CBDC would require new, carefully crafted legislation that describes the roles and responsibilities of relevant government entities and private sector participants as well as laws that support the use of CBDC and appropriately protect the users of CBDC.  

Do No Harm: The introduction of a U.S. CBDC has the potential to destabilize both the domestic and foreign banking and financial services sectors, and to make illicit activity using the U.S. dollar easier. While it may not be possible to do no harm when introducing U.S. CBDC, avoiding these outcomes should be a high priority in any U.S. CBDC implementation even at the expense of the intended purpose.

To read the full paper click here.