The U.S. Federal Reserve is expected to publish a report about its work on a retail central bank digital currency (CBDC) or digital dollar in the coming days or weeks. We believe one of the design avenues being explored is a kind of digital cash. Not only does the design robustly address one of the most challenging issues with CBDC, privacy, but because it doesn’t use blockchain, it potentially leaves room for private payment innovation through stablecoins and bank-issued settlement tokens.
There’s a possibility that this solution could simultaneously address the financial inclusion aims which dominate the Democratic agenda and competition issues that concern Republicans when it comes to digital currency. However, the strongest feature is its ability to provide payment anonymity similar to physical cash but also comply with know your customer (KYC) rules.
In a recent video conference, Neha Narula, Director of the MIT Digital Currency Initiative, mentioned that the concept of “digital cash” was a research topic. MIT is working with the Boston Federal Reserve on CBDC research.
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