. s. growth. finally, price adjustments through exchange rate adjustment, by encouraging exports and making imports more costly, could play a role in current account adjustment. i must emphasize that, no matter how the u. s. external imbalance is narrowed, the level and composition of demand, both in the united states and abroad, would have to change. such a change, in turn, would require adjustments of relative prices. in the united states, to accommodate increases in exports relative to imports, changes in relative prices would be needed to shift production toward internationally traded goods and services and to shift consumption toward nontraded goods and services. by the same token, adjustment by our trading partners to a reduction in the u. s. current account deficit would require both an increased domestic demand to maintain the overall level of economic activity and an adjustment of relative prices to raise the share of nontraded goods in production and of traded goods in consumption. the prospect of a correction in the current account is often portrayed in ominous tones, a dark storm cloud looming on the economic horizon. yet, the economic adjustments i have just described are both feasible and, properly managed, need not lead to undue distress, either in the united states or abroad. after the dollar correction of the mid - 1980s, for example, economic activity in the united states continued to expand as the growth of domestic demand eased but was replaced by strong contributions from net exports. during that period, analogous adjustments helped to maintain economic performance among our trading partners. the pace of gdp growth in the foreign g7 economies, weighted by u. s. exports, increased from about 2 - 1 / 2 percent during 1982 - 84 to nearly 4 percent in 1985 - 87 as greater domestic demand growth compensated for weaker performance in net exports. u. s. current account adjustment could, in fact, be associated with quite favorable scenarios for the global economy. for example, the rise in foreign productivity growth that i touched on earlier could work through several channels to narrow the u. s. trade deficit as funds were attracted abroad. strong domestic demand among our trading partners would likely outweigh any drag resulting from appreciation of their currencies, while u. s. exports would benefit from both a change in relative prices and stronger foreign growth. of course, the financial press frequently points to less - favorable scenarios, including the so - called disorderly correction, that is, a rapid fall in the dollar that engenders a steep falloff in u. s

settlements recently described as “ the most promising way of providing central bank money in the digital age. " 3 any such general purpose, accountbased cbdc would likely require explicit congressional authorization. central bank money versus commercial bank money it is useful to note that in our daily lives we use both central bank money and commercial bank money for transactions. central bank money ( i. e., money that is a liability of the federal reserve ) includes physical currency held by the general public and digital account balances held by banks at the federal reserve. the funds banks put into these accounts are called reserve balances, which are used to clear and settle payments between banks. 4 in contrast, checking and savings accounts at commercial banks are liabilities of the banks, not the federal reserve. the bulk of transactions, by value, that u. s. households and firms make each day use commercial bank money as the payment instrument. federal reserve accounts and commercial bank accounts under current law, the federal reserve offers accounts and payment services to commercial banks. 5 these accounts provide a risk - free settlement asset for trillions of dollars of daily interbank payments. importantly, the use of central bank money to settle interbank payments promotes financial stability because it eliminates credit and liquidity risk in systemically important payment systems. 6 1 / 6 bis central bankers'speeches congress did not establish the federal reserve to provide accounts directly to the general public ; the federal reserve instead works in the background by providing accounts to commercial banks, which then provide bank accounts to the general public. under this structure, commercial banks act as an intermediary between the federal reserve and the general public. the funds in commercial bank accounts are digital and can be used to make digital payments to households and businesses, but commercial banks promise to redeem a dollar in one ’ s bank account into $ 1 of u. s. currency. in short, banks peg the exchange rate between commercial bank money and the u. s. dollar at one - to - one. due to substantial regulatory and supervisory oversight and federal deposit insurance, households and firms reasonably view this fixed exchange rate as perfectly credible. consequently, they treat commercial bank money and central bank money as perfect substitutes — they are interchangeable as a means of payment. the credibility of this fixed exchange rate between commercial and central bank money is what allows our payment system to be stable and efficient. i will return to this point later. this division of functions between the federal reserve and commercial banks reflects an economic truth