Why central banks?

Some central banks see monetary policy benefits to launching digital currencies. 

For example, the use of a central bank-issued digital wallet would allow central banks to more directly pass on stimulus to consumers. Instead of “helicopter dropping” money onto the banking system, the Fed could funnel the stimulus straight into consumer wallets.

The ECB and other central banks with negative interest rates could also apply those rates directly to any deposits held in those wallets, more effectively pushing consumers to spend into the economy.

Bank of America Securities expects that central banks will find more benefits in a digital currency than risks.

“We believe CBDCs will become more widespread by the mid-2020s,” BofA Securities wrote Wednesday.

But for the U.S., policymakers are hesitant to disrupt the status quo given the dollar’s role as the world’s reserve currency. Even with the race among other central banks and private players like Facebook’s Diem (formerly Libra), the Fed has said it will not move with haste on the digital dollar project.

“I don’t see an urgent flaw in our system that a central bank digital currency would fix,” Quarles said Tuesday.