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Illustration: Aïda Amer/Axios

China is moving ahead "rapidly" with its version of a central bank-issued digital currency and the Fed looks to be prioritizing development and moving forward with urgency to produce one in the U.S. as well.

Why it matters: Digital currencies would provide a number of new policy tools to help stimulate the economy, including allowing Congress to send money more quickly and efficiently to Americans or facilitating direct transmissions from the Fed to consumers.

What's happening: Spending patterns by the unemployed and others who received funds through the CARES Act and private company progress on digital currencies "has intensified calls for [central bank digital currencies] CBDCs to maintain the sovereign currency as the anchor of the nation's payment systems," Fed governor Lael Brainard said in a speech earlier this month.

  • "Moreover, China has moved ahead rapidly on its version of a CBDC."

Watch this space: Separate House and Senate bills have emerged this year proposing the creation of digital currencies.

The big picture: Congress' inability to pass additional economic stimulus could put more pressure on the Fed to hold up the economy, and its current tools are ill-suited to do so.

  • The Fed's Main Street Lending Program, its most high-profile effort to directly help individual Americans and smaller businesses, has provided less than one half of 1% of its $600 billion mandate.
  • The growing talk of the K-shaped recession in the U.S. has led to concerns that the Fed is driving income and wealth inequality, and even prompted a Senate bill to give the Fed a third mandate to reduce inequality.

The intrigue: A digital currency could also help the Fed implement monetary policy by setting interest rates on consumers' accounts holding the digital currency — analysts say this also could be a more efficient way for the Fed to institute negative interest rates to boost consumption and inflation.

Between the lines: China already is far ahead of the U.S. and much of the developed world in mobile payments, and a new digital currency could provide another avenue to challenge the dollar's supremacy as the world's funding currency.

What's next: The Fed could provide some hints on the next steps in developing a digital currency at its annual Jackson Hole Symposium, which is set to kickoff virtually on Thursday.

Go deeper

Mnuchin's plan to shift unspent Fed funds

Illustration: Aïda Amer/Axios

A move by Treasury Secretary Steven Mnuchin could handcuff his likely successor Janet Yellen's ability to immediately restart Fed economic programs.

Driving the news: Mnuchin is planning to shift $455 billion in unspent CARES Act funds into a special account that would require Congress' permission to access, Bloomberg reports.

57 mins ago - World

Putin foe Navalny to be detained for 30 days after returning to Moscow

Russian opposition leader Alexey Navalny. Photo: Oleg Nikishin/Epsilon/Getty Images

Russian opposition leader Alexey Navalny has been ordered to remain in pre-trial detention for 30 days, following his arrest upon returning to Russia on Sunday for the first time since a failed assassination attempt last year.

Why it matters: The detention of Navalny, an anti-corruption activist and the most prominent domestic critic of Russian President Vladimir Putin, has already set off a chorus of condemnations from leaders in Europe and the U.S.

Biden picks Warren allies to lead SEC, CFPB

Photo: Justin Sullivan/Getty Images

President-elect Joe Biden has selected FTC commissioner Rohit Chopra to be the next director of the Consumer Financial Protection Bureau (CFPB) and Obama-era Wall Street regulator Gary Gensler to lead the Securities and Exchange Commission (SEC).

Why it matters: Both picks are progressive allies of Sen. Elizabeth Warren (D-Mass.) and viewed as likely to take aggressive steps to regulate big business.