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Digital Cash gets a look from the Fed

A digital dollar backed by the US government could lead to faster money transfers, and more accessible than the current banking system, according to a new paper from the Federal Reserve (via CNBC).

The paper is meant to serve as a "first step in the discussion" and does not actually advocate the creation of a "central bank digital currency" (or CBDC). Still, the creation of a digital dollar will be a big change in how big a role the government will play in our finances. Possible downsides could include making commercial banks less attractive to consumers and impacting the Fed's ability to influence the financial system. The Fed is now inviting comments, including anything the paper may have missed.

The paper, a step toward the existence of a digital dollar, comes at a time when about 90 other countries are considering their own digital currencies, according to Reuters. The European Central Bank is investigating the creation of a digital euro, and China is testing a digital yuan, which it has been working on since 2014. Meanwhile, in the cryptocurrency world, stablecoins, some of which tie their value to the US dollar, have gained prominence.

As the paper says, the government will continue to support the "major international role of the US dollar". Taking your research publicly can help the government make it easier for other companies to design US-friendly systems, as Bloomberg points out.

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