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3.0 White Paper Analysis
OMG's CBDC WG Responses to Federal Reserve Discussion Paper
A breakdown of the White Paper discussion of a U.S. CBDC and the Desirements1) for that effort. Each Desirement is identified with the page number it is found on, its classification as a Benefit, Policy, Risks, Design, and a brief actionable statement.
Executive Summary
The following is the Executive Summary provided in the Money, and Payments: The U.S. Dollar in the Age of Digital Transformation2) White Paper:
- For a nation’s economy to function effectively, its citizens must have confidence in its money and payment services. The Federal Reserve, as the nation’s central bank, works to maintain the public’s confidence by fostering monetary stability, financial stability, and a safe and efficient payment system.
- This paper is the first step in a public discussion between the Federal Reserve and stakeholders about Central Bank Digital Currencies (CBDCs). For this paper, a CBDC is defined as a digital liability of a central bank that is widely available to the general public. In this respect, it is analogous to a digital form of paper money. The paper has been designed to foster a broad and transparent public dialogue about CBDCs in general and about the potential benefits and risks of a U.S. CBDC. The paper is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a U.S. CBDC.
Preparation for Responses to the Request for Comments
In order to provide answers to the 22 questions requested by the Federal Reserve in the White Paper, it is important to summarize the rest of the content of the White Paper to help provide context for the questions in the White Paper and OMG's CBDC WG answers to these questions. The questions fall into two major categories:
- CBDC Benefits, Risks, and Policy Considerations
- CBDC Design
In order for the Object Management Group's (OMG) CBDC WG to prepare responses to the questions in the White Paper, the OMG's CBDC WG has taken a traditional Systems Engineering approach to understanding the problem by dissecting it into smaller, more manageable pieces based on the stated objectives outlined in the White Paper. We noted four major objectives:
Methodology
The White Paper was read linearly (i.e., from top to bottom) with each statement classified as describing or providing: Background, Benefits, Policy Considerations, Risks, or Design. The sentences were copied into the appropriate table (e.g., Table 1, Benefits) in this White Paper Overview. Statements in the White Paper that provided Background were not transcribed into any table. This does not mean these Background statements were unimportant; they were used to provide definitions and context for the Benefits, Policy Considerations, Risks, or Design statements captured in the tables below.
- Note: Some of the statements have been edited to allow them to be standalone and written in the form of an “action”. For future iterations, these statements need to be written as requirements. See: Specifying Requirements in the Distributed Immutable Data Object - References Architecture (DIDO-RA).
Benefit Considerations
The following are the U.S. CBDC Benefits identified in the White Paper:
Table 1: The Benefits identified in the White Paper
| Desirement No. | Page No. | Desirement3) |
|---|---|---|
| B0001 | 1 | Provide benefits to households, businesses, and the overall economy that exceed any costs and risks |
| B0002 | 1 | Yield such benefits more effectively than alternative methods |
| B0003 | 1 | Complement, rather than replace, current forms of money and methods for providing financial services |
| B0004 | 2 | Protect consumer privacy |
| B0005 | 2 | Protect against criminal activity |
| B0006 | 2 | Provide broad support from key stakeholders |
| B0007 | 3 | Provide households and businesses a convenient and electronic form of central bank money with:
|
| B0008 | 3 | Provide entrepreneurs a platform on which to create new financial products and services |
| B0009 | 3 | Provide faster and cheaper payments (including cross-border payments) |
| B0010 | 3 | Expand consumer access to the financial system |
| B0011 | 7 | Make payments:
|
| B0012 | 7 | Provide payment services to households and businesses around the clock, every day of the year |
| B0013 | 7 | Provide immediate access to transferred funds |
| B0014 | 7 | Reduce costs and fees associated with certain types of payments |
| B0015 | 9 | Reduce cross-border costs to benefit:
|
| B0016 | 11 | Provide Stablecoins that are:
|
| B0017 | 9 | Provide Stablecoins that are:
|
| B0018 | 13 | Allow the general public to make digital payments |
| B0019 | 13 | Provide the safest digital asset available to the general public, with no:
|
| B0020 | 13 | Maintain public confidence by not requiring mechanisms, such as deposit insurance |
| B0021 | 13 | Maintain value by not using backing by an underlying asset |
| B0022 | 13 | Provide a CBDC that is: |
| B0023 | 14 | Create a liability to the Federal Reserve |
| B0024 | 14 | Provide transactions finalized and completed in real time |
| B0025 | 14 | Serve as a new foundation for the payment system |
| B0026 | 14 | Provide a bridge between legacy and new payment services |
| B0027 | 14 | Maintain the centrality of safe and trusted central bank money |
| B0028 | 14 | Offer the general public broad access to digital money:
|
| B0029 | 14 | Support basic purchases of:
|
| B0030 | 14 | Support benefit payments directly to citizens |
| B0031 | 14 | Provide the general public broad access to digital money that is free from:
|
| B0032 | 14 | Provide a programmable CBDC |
| B0033 | 15 | Support a level playing field in payment innovation for private-sector firms of all sizes |
| B0034 | 15 | Generate new capabilities to meet the speed and efficiency requirements of the digital economy |
| B0035 | 15 | Streamline cross-border payments by using:
|
| B0036 | 15 | Preserve the dominant international role of the U.S. dollar |
| B0037 | 15 | Support private-sector innovation |
| B0038 | 15 | Allow private-sector innovators to focus on:
|
| B0039 | 15 | Provide a programmable CBDC to deliver payments at certain times |
| B0040 | 15 | Provide micropayment support |
| B0041 | 15 | Support streamlining cross-border payments |
| B0042 | 15 | Preserve the dominant international role of the U.S. dollar |
| B0043 | 16 | Promoting financial inclusion—particularly for economically vulnerable households and communities |
| B0044 | 16 | Facilitate access to digital payments |
| B0045 | 16 | Enable rapid and cost-effective payment of taxes |
| B0046 | 16 | Enable rapid and cost-effective delivery of:
|
| B0047 | 16 | Lower transaction costs |
| B0048 | 16 | Provide a secure way for people to save |
| B0049 | 16 | Promote access to credit |
| B0050 | 16 | Extend Public Access to Safe Central Bank Money |
| B0051 | 19 | Generate data about users’ financial transactions similar to the current Commercial Bank4) and Nonbank Money |
| B0052 | 19 | Prevent Financial money laundering crimes |
| B0053 | 20 | Provide resiliency to threats to existing payment services—including:
|
| B0054 | 19 | Attract risk-averse users to CBDC |
Policy Considerations
The following are the U.S. CBDC Policy Considerations identified in the White Paper:
Table 2: The Policy Considerations identified in the White Paper
| Desirement No. | Page No. | Desirement |
|---|---|---|
| P0001 | 1 | Provide benefits to households, businesses, and the overall economy that exceed any
|
| P0002 | 1 | Provide Yield benefits more effectively than alternative methods |
| P0003 | 1 | Complement current forms of money and methods for providing financial services |
| P0004 | 2 | Protect consumer privacy |
| P0005 | 2 | Protect against criminal activity |
| P0006 | 2 | Garner broad support from key stakeholders |
| P0007 | 2 | Be policy outcome neutral (i.e., not advancing a specific policy outcome) |
| P0008 | 2 | Have a neutral position on the ultimate desirability of a U.S. CBDC |
| P0009 | 3 | CBDC would be a liability of the Federal Reserve, not of a commercial bank |
| P0010 | 3 | CBDC would be a liability not of a commercial bank5) |
| P0011 | 3 | The Federal Reserve does not intend to proceed with the issuance of a CBDC without clear support from:
|
| P0012 | 7 | The firms that operate interbank payment services are subject to federal supervision |
| P0013 | 7 | Systemically important payment firms are subject to
|
| P0014 | 12 | The PWG report highlights gaps in the authority of regulators to reduce these risks |
| P0015 | 12 | The PWG report recommends that Congress act promptly to enact legislation that would ensure payment Stablecoins |
| P0016 | 12 | The PWG report recommends payment Stablecoin arrangements are subject to a consistent and comprehensive federal regulatory framework |
| P0017 | 12 | The PWG report recommends CBDC complement existing authorities Regarding:
|
| P0018 | 13 | The Federal Reserve Act does not authorize direct Federal Reserve accounts for individuals |
| P0019 | 13 | Federal Reserve accounts for individuals represent a significant expansion of the Federal Reserve’s role in the financial system and the economy |
| P0020 | 13 | The private sector would offer accounts or digital wallets to facilitate the management of CBDC holdings and payments |
| P0021 | 13 | The intermediaries would operate in an open market for CBDC services |
| P0022 | 14 | CBDC itself would be a liability of the Federal Reserve |
| P0023 | 14 | CBDC would need to be readily transferable between customers of different intermediaries |
| P0024 | 14 | CBDC would need to comply with the U.S. robust rules |
| P0025 | 14 | CBDC intermediary would need to verify the identity of a person accessing CBDC |
| P0026 | 14 | CBDC transactions would need to be final and completed in real-time |
| P0027 | 14 | CBDC a risk-free asset |
| P0028 | 15 | Require significant international coordination to address issues such as:
|
| P0029 | 16 | The Federal Reserve is committed to ensuring the continued safety and availability of cash |
| P0030 | 21 | The Federal Reserve will only take further steps toward developing a CBDC if:
|
| P0031 | 21 | The Federal Reserve would only pursue a CBDC in the context of broad public and cross-governmental support |
Risk Considerations
The following are the U.S. CBDC Risks identified in the White Paper:
Table 3: The Risks identified in the White Paper
| Desirement No. | Page No. | Desirement |
|---|---|---|
| R0001 | 3 | Risk of affecting financial-sector market structure |
| R0002 | 3 | Risk to the cost and availability of credit |
| R0003 | 3 | Risk to the safety and stability of the financial system |
| R0004 | 3 | Risk to the efficacy of monetary policy |
| R0005 | 7 | New payment services could pose Risks to:
|
| R0006 | 8 | Risk of extreme price volatility |
| R0007 | 8 | Risk CBDC is difficult to use without service providers |
| R0008 | 8 | Risk of severe limitations on transaction throughput |
| R0009 | 8 | Increased Risk of “runs” or other instabilities to the financial system |
| R0010 | 11 | CBDC has Risk of significant energy footprint similar to Cryptocurrencies |
| R0011 | 11 | Increased Risk to consumer's vulnerability to:
|
| R0012 | 12 | Risk of increased concern related to the potential for:
|
| R0013 | 13 | CBDC offers no associated credit or liquidity Risk |
| R0014 | 13 | Risk of not achieving an appropriate balance between safeguarding the privacy rights of consumers and affording the transparency necessary to deter criminal activity |
| R0015 | 14 | Require mechanisms to reduce liquidity Risk |
| R0016 | 14 | Require mechanisms to reduce credit Risk |
| R0017 | 15 | Using private digital money could present Risks to both individual users and the financial system as a whole |
| R0018 | 17 | Risk a CBDC could fundamentally change the structure of the U.S. financial system, altering the private sector and central bank:
|
| R0019 | 17 | Risk of reducing the aggregate amount of deposits in the banking system, which could in turn increase bank funding expenses, and reduce credit availability or raise credit costs for households and businesses. |
| R0020 | 17 | Risk that interest-bearing CBDC could result in a shift away from other low-risk assets, such as shares in money market mutual funds, Treasury bills, and other short-term instruments. |
| R0021 | 17 | Risk of reducing credit availability or raising credit costs for businesses and governments |
| R0022 | 17 | Risk of Stablecoins and other types of nonbank money shifting deposits away from banks even without a CBDC |
| R0023 | 17 | Risk of financial panic causing outflows from Commercial Banks to CBDC without prudential supervision, government deposit insurance, and access to central bank liquidity |
Design Considerations
Table 4: The Designs identified in the White Paper
| Desirement No. | Page No. | Desirement |
|---|---|---|
| D0001 | 17 | Design should be for a non-interest-bearing CBDC, for example, would be less attractive as a substitute for commercial bank money |
| D0002 | 17 | Design should allow the central bank to limit the amount of CBDC an end-user could hold |
| D0003 | 18 | Design should allow a limit on the amount of CBDC an end-user could accumulate over short periods |
| D0004 | 18 | Design should influence how the Federal Reserve might affect monetary policy |
| D0005 | 18 | Design could affect monetary policy implementation and interest rate control by altering the supply of reserves in the banking system |
| D0006 | 18 | Design should allow an increase in CBDC supply to provide an adequate buffer, so there is little effect on the federal funds rate |
| D0007 | 18 | Design should allow the Federal Reserve to increase the level of reserves on average, in order to provide an adequate buffer against unanticipated increases in CBDC |
| D0008 | 18 | Design should allow for interest-bearing at levels of the CBDC to be controlled independently of other safe assets |
| D0009 | 18 | Design should allow for significant foreign demand for CBDC, further complicating monetary policy implementation |
| D0010 | 18 | Design should consider the potential for interest-bearing CBDC as a new policy tool on the channels of influence in monetary policy |
| D0011 | 19 | Design should generate data about users’ financial transactions in the same ways that commercial bank and nonbank money generates data today |
| D0012 | 19 | Design should address privacy concerns by leveraging existing tools already in use by intermediaries |
| D0013 | 19 | Design should facilitate compliance with a robust set of rules already intended to combat
|
| D0014 | 20 | Design should involve private-sector partners with established programs to help ensure compliance with existing rules |
| D0015 | 20 | Design should include any dedicated infrastructure required to provide resilience to threats such as operational disruptions and cybersecurity risks |
| D0016 | 20 | Design should include offline capabilities to help with the operational resilience of the payment system |
| D0017 | 20 | Design should include digital payments in areas suffering from large disruption, such as natural disasters |
1)
Desirement is a blended word combining the word Desire and Requirement. Desirement is something desired but not absolutely required and is often used to caption the capabilities of a product or system before it has reached the formal requirements phase.
Source: Desirement
2)
Board of Governors,
The Federal Reserve System,
January 2022,
Accessed: 5 May 2022,
https://www.federalreserve.gov/publications/files/money-and-payments-20220120.pdf
3)
Desirement is a blended word combining the word Desire and Requirement. Desirement is something that is desired but not absolutely required and is often used to caption the capabilities of a product or system before it has reached the formal requirements phase.
Source: Desirement
4)
Commercial banks include banks licensed either by federal or state banking agencies, credit unions, and thrifts from the White Paper.
5)
Commercial banks include banks licensed either by federal or state banking agencies, credit unions, and thrifts from the White Paper.
cbdc/public/cbdc_omg/04_doc/12_summary/start.txt · Last modified: 2022/06/17 17:41 by terrance
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