Meet the crypto-dollar

On Nov. 15, the Federal Reserve Bank of New York and several large financial institutions began an experiment to determine the feasibility of exchanging a digital dollar through banks regulated by the government. In the proof of concept, commercial banks are transferring digital money or “tokens” through simulated customer deposits between banks and the Federal Reserve.

The test environment follows e­xisting regulations for financial transactions but uses decentralized “peer-to-peer” computer technology to send and receive money, similar to the way internet users trade bitcoin and other cryptocurrencies online. Nine financial institutions, including Citibank, Wells Fargo, and Mastercard, are participating in the three-month experiment.

The White House in September announced a framework for managing digital assets and cryptocurrencies, including additional regulations to crack down on fraudulent digital transactions. Proponents say a digital dollar backed by the Federal Reserve could spur financial innovation and improve the efficiency of cross-border transactions. But skeptics worry about the ability of the decentralized system to safeguard personal and financial privacy.

Credit revamp

Credit scores have for years included five criteria: payment history, current indebtedness, types of credit used, length of credit history, and new credit accounts. Now, the Federal Housing Finance Agency is replacing traditional credit scoring for mortgages with two models meant to improve risk prediction and expand access to loans for lower-­income Americans. But the plan has stoked controversy.

As of Oct. 23, banks, investors, and lending companies that sell mortgages to Fannie Mae and Freddie Mac must use credit scoring models that show 24 months of consumer-spending data and payment history not previously scored, such as payments for rent, utilities, phone, and internet service. An estimated 37 million more people could receive credit scores under the new models.

Critics say the initiative increases financial risk and may also allow lenders to favor borrowers whose spending ­habits reflect values ­lenders deem socially appropriate. —T.V.

Household debt hits $16.51 trillion

Total U.S. household debt rose by $351 billion in the third quarter of 2022—the largest quarterly increase since 2007, according to a Federal Reserve Bank of New York report released Nov. 15. Mortgages accounted for $282 billion of the debt increase, and credit cards $38 billion. The growth in credit card debt, a 15 percent increase over a year ago, reflects persistent consumer demand despite higher prices for goods and services. —T.V.