The Shape of Fedcoin

What do we know about the Fed's design for a CBDC, sometimes referred to as Fedcoin? Not much. It’s certainly different from the ideas first expressed by JP Koning back in 2014, who created the term. But, if we read between the lines of some Fed talks, we can gather some ideas of the future. Here, I will refer to Governor Brainard's remarks from earlier this year. I see this much so far.

The Fed wants to prevent the disintermediation of banks, suggesting strongly that a wholesale model will be followed. This means that Fedcoin will only be available to banks, which will then issue their own version of CBDC. So, it will be private money based on central bank money just as is done now with USD.

She also does not talk of individual anonymity in transactions using CBDC but instead "household" privacy and "digital verification of identities." This is odd phrasing. It suggests to me that some form of limited identity protocol will be used for AML instead of the usual KYC. This will allow for some anonymity in transactions. This approach makes sense if consumers are to get their Fedcoin via banks through a wholesale CBDC model. You will use your existing bank account or have to sign up for one if you want Fedcoin.

On financial inclusion, Brainard basically states outright that banks will have to provide free CBDC retail accounts to anyone that wants one. This shifts the burden of retail accounts off of the Fed. This also suggests that the banks or the government will need to provide a free device that allows for CBDC transactions for those without smart phones.

Overall, this approach to a US CBDC fits perfectly with the existing use of central bank money in the US and historical precedent in general.