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George Washington Law Review

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digital currencies, privileged access, Federal Reserve


Banking and Finance Law | Law


We are entering a new monetary era. Central banks around the world- spurred by the development of privately controlled digital currencies as well as competition from other central banks-have been studying, building, and, in some cases, issuing central bank digital currency ("CBDC").

Although digital fiat currency is one of the hottest topics in macroeconomics and central banking today, the discussion has largely over- looked the most straightforward and appealing strategy for implementing a U.S. dollar-based CBDC: expanding access to bank accounts that the Federal Reserve already offers to a small, favored set of clients. These accounts consist of entries in a digital ledger-like other digital currencies--and are extremely desirable, offering high interest, instant payments, and full government backing with no limit. But U.S. law restricts these accounts to an exclusive clientele consisting primarily of banks. Privileged access to these accounts creates a striking asymmetry at the core of our monetary framework: government-issued physical currency is available to all, but government-issued digital currency (in the form of central bank accounts) is not.

This dichotomy is unwarranted. Congress should authorize the Federal Reserve to give everyone--individuals, businesses, and institutions--the option to maintain accounts at the central bank. We call these accounts Fed Accounts. Unlike the CBDC approaches currently under discussion, which would use complicated and inefficient distributed ledger technology and be walled off from the existing system of money and payments, Fed Accounts would be seamlessly interoperable with the mainstream payment system, relying on technologies that the Federal Reserve has used for decades.



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