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Question: 14. Should a CBDC be legal tender?
Question
Should a CBDC be legal tender?
Answer
According to the U.S. Code, Title32, Subtitle IV, Chapter 51, Subchapter I Section § 5103, Legal Tend in the U.S. is:
- United States coins and currency (including Federal Reserve Notes and circulating notes of Federal Reserve Banks and national banks) are legal tenders for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.https://www.law.cornell.edu/uscode/text/31/5103
According to the Statutes, yes if the U.S. CBDC is considered a form of the Federal Reserve Note.
The U.S. CBDC could offer another mechanism to the existing non-cash mechanisms such as debit cards, credit cards, electronic transfers, and checks. However, in order to offer real-time settlements, it may need to use a different mechanism than the existing Automated Clearing House (ACH) Network currently in use to electronically move money between banks accounts across the U.S. The current ACH network is run by an organization called Nacha, formerly the National Automated Clearing House Association (NACHA).
Provide a bridge between legacy and new payment services There definitely would need to be a bridge between the existing ACH-NACHA payment network and a U.S. CBDC, its associated Consensus Algorithms, and the network of nodes. However, in addition to the bridge between the two, there probably needs to exist a new consolidated frontend ( Application Programming Interface (API)?) that abstracts the type of payment from the participants in the transactions. In other words, the transaction should be agnostic to the non-cash mechanisms such as debit cards, credit cards, electronic transfers, checks, and CBDC.
The U.S. CBDC needs to support basic purchases of:
- goods
- services
- pay bills
- pay taxes
U.S. CBDC should be treated like any other payment form, even though under the hood, it might use a different payment network than the National Automated Clearing House Association (NACHA) network.
Examples
The following “desirements” are from the White Paper as identified by the Object Management Group's report called White Paper Analysis:
| Benefits | B0025, B0026, B0029, B0034, B0038, B0040, B0044, B0045, B0046, B0047, B0049 |
|---|---|
| Policies | P0003, P0018, P0019, P0020, P0021 |
| Risks | |
| Design | D0004 |
Example Discussion
| Statement No. | Statement | Comment |
|---|---|---|
| B0025 | Serve as a new foundation for the payment system | The CBDC could offer another mechanism to the existing non-cash mechanisms such as debit cards, credit cards, electronic transfers, and checks. However, in order to offer real-time settlements, it may need to use a different mechanism than the existing Automated Clearing House Network (ACH) network currently to electronically move money between banks accounts across the U.S. The current ACH network is run by an organization called Nacha, formerly the National Automated Clearing House Association (NACHA). |
| B0026 | Provide a bridge between legacy and new payment services | There definitely would need to be a bridge between the existing ACH-NACHA payment network and a U.S. CBDC, its associated Consensus Algorithms, and the network of nodes. However, in addition to the bridge between the two, there probably needs to exist a new consolidated frontend ( Application Programming Interface (API)?) that abstracts the type of payment from the participants in the transactions. In other words, the transaction should be agnostic to the non-cash mechanisms such as debit cards, credit cards, electronic transfers, checks, and CBDC. |
| B0029 | Support basic purchases of:
|
See the answer to |
| B0038 | Allow private-sector innovators to focus on:
|
By defining a new standardized Application Programming Interface (API) as in |
| B0044 | Facilitate access to digital payments |
See answers to |
| B0046 | Enable rapid and cost-effective delivery of:
|
See answer |
| B0047 | Lower transaction costs |
See answer |
| B0049 | Promote access to credit |
See answer |
| P0003 | Complement current forms of money and methods for providing financial services |
See answer |
| P0018 | The Federal Reserve Act does not authorize direct Federal Reserve accounts for individuals | The easiest solution is to allow current intermediaries to process CBDC transactions using an upgraded payment system.
See answer |
| P0020 | The private sector would offer accounts or digital wallets to facilitate the management of CBDC holdings and payments |
See answer |
| P0021 | The intermediaries would operate in an open market for CBDC services |
See answer |
| D0004 | Design should influence how the Federal Reserve might affect monetary policy |
See answer |
[nick]Incorporate suggested answer from Lars into this section; the wording he suggests is provided as a comment below this todo so you don't have to hunt for it in your emails.
