The U.S. central bank is studying the feasibility of a digital currency, said Federal Reserve Governor Lael Brainard.

“Given the dollar’s important role, it is essential that we remain on the frontier of research and policy development regarding” central bank digital currency, or CBDC, Brainard said Wednesday in the text of a speech prepared for delivery at the Stanford Graduate School of Business in California. “We are conducting research and experimentation related to distributed ledger technologies and their potential use case for digital currencies, including the potential for a CBDC.”

Brainard’s remarks show the Fed is giving digital currency a closer look after its initial caution on the subject. The Bank for International Settlements and the International Monetary Fund have called for central banks to at least study the possibility of digital currencies as private sector firms propose and experiment with a competing units of exchange. Such initiatives include Facebook Inc.’s proposed global digital currency Libra.

“Because Facebook has an active user network of one-third of the global population, the company’s Libra global stablecoin project has imparted urgency to the debate over what form money can take, who or what can issue it, and how payments can be recorded and settled,” Brainard said.

The Fed governor listed several topics that needed further study, including:

• Would a CBDC reduce costs and operational vulnerabilities?
• What kinds of banks or financial firms would offer digital currency accounts and who would oversee them?
• What kinds of financial stability risks would be raised by digital currencies?
• “These are some of the issues that would need to be addressed before deciding to issue a CBDC in the United States,” Brainard said.

 — Craig Torres and Vivien Lou Chen (Bloomberg)