After nearly a year, the Federal Reserve has finally released its discussion paper on central bank digital currencies (CBDCs). For a 40-page document, the findings were actually rather thin. It seems the Fed is still undecided, but it is leaning towards launching a CBDC that would protect privacy without permitting anonymous use, be intermediated (or hosted) by private banks, and be easily transferable. In other words, it would be much like what already exists.

To justify the launch of the new system, the Fed lists improvements to the payments system, financial inclusion, and the dollar’s international status as potential benefits of a CBDC. Yet a CBDC is hardly necessary to fulfill these ends considering these are already areas that are being actively improved.

The U.S. payments system––one that does resemble that of a developing nation––is long overdue for an upgrade, but that is not to say that upgrades are not underway. The Clearing House launched such an upgrade back in 2017. In fact, by all signs, the system they launched would have been nearly in full effect by now had the Fed not interrupted its progress with the announcement of a competing service––a service that is not expected for another year. However, if the Fed is set on being at the helm, there is even a third option available. The Fed could simply expand its operating hours to fix much of the issue today. It may not be clear which option will go into full effect first, but the system will likely be fixed long before a CBDC hits the market. So really, a CBDC is hardly a benefit here.

Financial inclusion is a worthy goal as well, but one that similarly falls flat. The discussion paper devotes just two paragraphs to the “possible benefit of financial inclusion,” and it ultimately concludes with a request for research that would confirm the possibility. However, research already shows that the number of unbanked individuals has been declining every year. So, again, it’s possible that this is one problem that will be fixed before a CBDC is launched. Second, 75% of the unbanked say that they are simply uninterested in having a bank account. And third, two of the key reasons for being unbanked are concerns about privacy and trust. Considering the public’s trust in the government is at historic lows, it’s unlikely a CBDC will be winning any hearts. Thus, it is again unclear how much of a benefit a CBDC will be here.

The final benefit described is the idea that a CBDC would support the dollar’s role as the world’s reserve currency, and this benefit probably holds the most weight of the three. However, it’s not without issues. First, any improvement to the utility of the dollar will support its international status––a CBDC is not a unique solution here. Second, it’s not clear that adopting a digital currency is enough for other nations to unseat the dollar’s status as the world’s reserve currency. While it may be an improvement for some foreign currencies to “go digital,” those currencies still have other problems that will keep mass adoption at bay. China’s digital currency is a good example. Although China is ahead of the United States in the “digital currency race,” it is unlikely that the world will flock to its digital currency because of the considerable lack of privacy one is subjected to in the Chinese digital currency system. So while a CBDC may in fact be beneficial for the United States in this respect, so too are any number of other ways that might improve the dollar.

Maybe it shouldn’t be such a surprise that the discussion paper was finally released considering CBDC legislation is also underway. However, it’s still unclear what the Fed has been doing since May 2021. What started as a “summer publication” soon became “expected in the fall” and then “in the coming weeks.” Now that it is finally here, it seems that the Fed and Congress have a long road ahead if they wish to justify such a program to the public. The first place they should start is in identifying how a CBDC can be anything more than a solution in search of a problem.