What does the Federal Reserve think about digital payment systems and digital currencies?

Here are some ratings

As is known, the US economy is spread over a very large territory that reaches two oceans (Atlantic and Pacific). As is well known the great level of variety of the US economy. The Federal Reserve, or the Central Bank of the United States of America, constantly monitors the US economy, in order to guarantee the country's economic growth and keep inflation under control.
The most recent research by the Federal Reserve on payment systems dates back to 2019: among the 174 billion dollars of payments made without cash in 2018, more than 75% was done with payment cards (including credit cards, debit cards, prepaid cards).

To monitor such a large territory, the Fed (Federal Reserve) has divided the United States territory into twelve districts, in each of which there is a Fed headquarters (usually located in a large / medium-large population center) .

The Kansas City Fed is in charge of following the economy of the Midwestern / Rocky Mountains area of the United States.

And since 1999 a group of experts has been working within it - called the Payments System Research Group - which is responsible for analyzing the evolution of payment systems in the US and worldwide, in order to identify risks and opportunities.

In recent days (February 2020), the most recent observations prepared by this group of experts from the Fed of Kansas City, coordinated by Susan Zubradt, have been published.

Over the past twenty years, technology has been increasingly present in changes in the world of retail payments. In the Ten years, new payment methods appeared, such as digital currencies, which rely on technologies such as blockchain, distributed ledger, cryptography. These innovations have started to change the underlying payment process. In addition, technologies such as machine learning and artificial intelligence have been adopted to prevent payment fraud. Fraud that has become increasingly sophisticated over time.

Another major topic brought to the attention is the role of large US technology corporations - such as Facebook, Amazon, Google - in designing financial services based on the use of their users' data.

The research briefing concludes by asking some relevant questions on the efficiency, security and stability of payment systems, on the level of adoption of new forms of payment by people and companies, on the role of central banks in front of these innovations.

Another major topic recently analyzed (February 2020) by the Kansas City Fed concerns the relationship between currencies issued by the Central Bank and digital private currencies, also with reference to the hypothesis of digital currencies issued by the Central Bank.

Private currencies, issued by individual banks and alternatives to the official ones of the Central Bank, are not an absolute novelty in the world: for example, in Sweden, until 1903, there was the coexistence of currencies issued by individual banks and by the Central Bank of that country. In Canada, private and official currencies were in circulation simultaneously until 1950. In the United States, private and central bank currencies were both in use between 1914 and 1935.

Starting in the second half of the twentieth century, in most of the world the central banks of individual countries became the only subjects able to issue currencies in a legal way: private currencies were considered as a threat to monetary policy and the stability of financial systems, and, in the USA, they were also seen as an obstacle to the Federal Reserve's ability to control money reserves.

During the 10s of the 21st century, new forms of digital private currencies emerged, but to date they have not had a rapid spread in the retail payments sector: the reason, says the Fed of Kansas City, is that people and companies don't want to adopt a payment product until they see that many other people and many other companies are already using it.

Unlike other private digital currencies, the digital currencies created by large technology companies (such as Facebook, Amazon, Google) would have the potential to get to make critical mass, since these corporations already have a very large user base.

For several years now, central banks have been thinking about the possibility of issuing their own digital currency, but for the moment this seems like a premature discourse. Although large tech corporations have a huge user base, it is not sure that their users would massively adopt digital currencies issued by private companies.

In fact, in addition to the competition brought by the big names in technology, the Fed and the other Central Banks have other reasons to continue thinking about digital currencies.   In recent days (February 2020), the most recent observations prepared by this group of experts from the Fed of Kansas City, coordinated by Susan Zubradt, have been published.

Over the past twenty years, technology has been increasingly present in changes in the world of retail payments. In the Ten years, new payment methods appeared, such as digital currencies, which rely on technologies such as blockchain, distributed ledger, cryptography. These innovations have started to change the underlying payment process. In addition, technologies such as machine learning and artificial intelligence have been adopted to prevent payment fraud. Fraud that has become increasingly sophisticated over time.

Another major topic brought to the attention is the role of large US technology corporations - such as Facebook, Amazon, Google - in designing financial services based on the use of their users' data.

The research briefing concludes by asking some relevant questions on the efficiency, security and stability of payment systems, on the level of adoption of new forms of payment by people and companies, on the role of central banks in front of these innovations.

Another major topic recently analyzed (February 2020) by the Kansas City Fed concerns the relationship between currencies issued by the Central Bank and digital private currencies, also with reference to the hypothesis of digital currencies issued by the Central Bank.

Private currencies, issued by individual banks and alternatives to the official ones of the Central Bank, are not an absolute novelty in the world: for example, in Sweden, until 1903, there was the coexistence of currencies issued by individual banks and by the Central Bank of that country. In Canada, private and official currencies were in circulation simultaneously until 1950. In the United States, private and central bank currencies were both in use between 1914 and 1935.

Starting in the second half of the twentieth century, in most of the world the central banks of individual countries became the only subjects able to issue currencies in a legal way: private currencies were considered as a threat to monetary policy and the stability of financial systems, and, in the USA, they were also seen as an obstacle to the Federal Reserve's ability to control money reserves.

During the 10s of the 21st century, new forms of digital private currencies emerged, but to date they have not had a rapid spread in the retail payments sector: the reason, says the Fed of Kansas City, is that people and companies don't want to adopt a payment product until they see that many other people and many other companies are already using it.

Unlike other private digital currencies, the digital currencies created by large technology companies (such as Facebook, Amazon, Google) would have the potential to get to make critical mass, since these corporations already have a very large user base.

For several years now, central banks have been thinking about the possibility of issuing their own digital currency, but for the moment this seems like a premature discourse. Although large tech corporations have a huge user base, it is not sure that their users would massively adopt digital currencies issued by private companies.

In fact, in addition to the competition brought by the big names in technology, the Fed and the other Central Banks have other reasons to continue thinking about digital currencies.