… or rather, trying to replicate a desired outcome without thinking through the steps to get there. Here is my response to their request for feedback on a retail CBDC: https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf
Firstly, all the potential benefits of a CBDC, let alone a retail CBDC could be achieved through collaboration with existing stablecoin infrastructure. Just as they enlisted private credit funds to execute their 2008 bailout of the banks through TARP, I don’t see why they wouldn’t be able to enlist private stablecoin issuers to do the same regarding a retail CBDC by “whitelisting” a list of newly minted stablecoins that they deem as “CBDC-equivalent” (perhaps after thorough due diligence of the operations, reporting, auditing, and practices of the issuers).
However, this still misses the point. Trying to force retail to use CBDC (or stablecoins for that matter) will be quite difficult. This would require tons of effort in marketing, education, and on-going customer support (i.e. dealing with angry users who don’t know what they’re doing), let alone the actual technology and infrastructure to even support and maintain the system for a retail-use CBDC.
Still, this misses the point. Our economy isn’t driven solely by the collective spending habits of the masses. In fact, it is formulaically understood to only be one part of our economy (recalling basic macroeconomics: GDP = C + I + G + NX). Focusing on a retail-use CBDC only addresses the “C” in that GDP equation, and wouldn’t make sense if the “I” and “G” are ignored.
Here’s how I would approach this:
I) Enlist a few stablecoin issuers to be part of a Fed-approved, self regulated, stablecoin network, where the stablecoins would be not only “cash-equivalent” but “CBDC-equivalent”.
II) Start building up inventory in these stablecoins, either through open market purchases, or accepting tax payments in the form of stablecoins. (This indirectly affects the “C” in our GDP equation)
III) Start incentivizing the use of stablecoins:
- offering a discount if taxes (both personal and business) are paid in stablecoins (“C”)
- offer higher purchase prices of mortgages from GSEs (“G”, and indirectly “I”)
- offer higher purchase prices of SBA loans (“G”, and indirectly “I”), and premiums on any draws made on the SBA credit facility denominated in stablecoins
- offer a lower rate for their discount lending window to banks if taken in stablecoin (indirectly “I” and “G”)
I think the enactment of these three steps would result in more businesses being wiling to conduct B2B transactions in stablecoins, which should trickle down to an increased willingness to conduct B2C transactions in stablecoins. However, even if they were to pause in between each step, I suspect they’ll see clear momentum pushing them onward to the next step.
As for anonymity and privacy at the retail level if stablecoins were to be used as CBDCs — this will be the most difficult hurdle for implementation. Making blanket decisions one way or the other would be too extreme. Perhaps this can be addressed in another post (after I think about it some more), but my knee-jerk solution would be some sort of CBDC-wrapper on stablecoins, where the Fed distributes some sort of interest (obviously, in the form of additional CBDC-wrapped stablecoins) on CBDC-wrapped stablecoins held in wallets and opted-in for CBDC-level tracking. That way stablecoin users who are comfortable with some degree of reasonable tracking can opt-in to allow their funds to be tracked, while earning some interest, and having access to some tracking activity report (i.e. the Fed reporting on how many inquiries they’ve made on specific activities on the CBDC-wrapped stablecoins held in their wallets). Those who do not want to be tracked, can opt to not have their stablecoins wrapped, and would use these unwrapped stablecoins as per usual (forgoing interest paid by the Fed).
