The US Federal Reserve (Fed) announced that it will release a research paper this summer focusing on the benefits and risks of a central bank digital currency (CBDC).

The Fed will solicit public opinion regarding the digital currency, which is intended to complement the traditional currency and not to replace it.

The Fed did not specify any of its plans, but its Chairman Jerome Powell said that “the Fed has been carefully monitoring and adapting to those innovations.”

I believe that such a move taken by the Fed comes at the right time, especially when considering the difficult situation the cryptocurrency market went through recently that resulted in severe fluctuations in the exchange rate of such currencies, especially Bitcoin, against the US dollar.

Bitcoin surged to a record high of more than $60,000 in April. However, due to the announcement by Tesla that it was suspending Bitcoin payments and the warning by the People’s Bank of China not to engage in any form of virtual currency transactions, Bitcoin plunged by more than 50 percent to nearly $30,000 at one point this month.

Tesla CEO Elon Musk tweeted that Tesla was not going to sell any of its Bitcoin reserves, but it was going to stop accepting Bitcoin payments until the mining used in the cryptocurrency’s production was made more sustainable.

Digital currencies hold some of their biggest potential for the 1.7 billion people globally who lack a bank account, according to the World Bank.

Talat Zaki Hafiz

More than 60 countries are currently at different stages of studying or developing a digital currency, according to research group CBDC Tracker. Among these are China, Canada, Australia, Japan and countries in the EU and UK.

It is believed that digital currencies hold some of their biggest potential for the 1.7 billion people globally who lack a bank account, according to the World Bank.

As part of a joint venture between the Saudi Central Bank and the Central Bank of the United Arab Emirates, the two central banks have launched the Aber Project. The initiative is considered one of the first of its kind internationally at the level of central banks. It is aiming for proof of concept and will study, understand and evaluate the feasibility of issuing a digital currency for central banks.

I fully agree with Blockchain News journalist Lucas Cacioli’s statement that the CBDC race heated up this year with the need for digital payments and cashless payment systems, exacerbated by the pandemic and economic disruption.

I still believe that a CBDC sooner or later will come into effect and will be recognized by most countries in the world. When this happens, it will ease central banks’ worries regarding the volatility of cryptocurrencies and the suspicions surrounding their use in criminal operations, such as money laundering and tax evasion.

• Talat Zaki Hafiz is an economist and financial analyst. Twitter: @TalatHafiz