Fed enters race for digital currency

An announcement from Jerome Powell yesterday, threw the US Federal Reserve hat in the ring to join China, Japan, the UK and other major countries that are researching into the implications and development of a central bank digital currency (CBDC). 

From being one of the only major central banks not seen to be doing anything in the field of central bank digital currencies, Powell’s statement now brings the US into the digital currency race in earnest. 

It appears that the Federal Reserve is still in the discussion phase, as Powell, the Fed chairman, stated the following: 

“We are committed at the Federal Reserve to hearing a wide range of voices on this important issue before making any decision on whether and how to move forward with a U.S. CBDC,” and “To help stimulate broad conversation, the Federal Reserve board will issue a discussion paper this summer outlining our current thinking on digital payments, with a particular focus on the benefits and risks associated with CBDC in the U.S. context.” 

According to a Bloomberg article on the subject, Powell’s style is to gather opinions and consensus from others before moving forward on major shifts. Powell has said that he wants the US to play a major role in the development of standards for central bank digital currencies, a more difficult move now given that China is a long way ahead of the US and is already implementing its own digital yuan. 

Jerome Powell elaborated on just how a CBDC would fit into the existing banking system: 

“Our key focus is on whether and how a CBDC could improve on an already safe, effective, dynamic, and efficient U.S. domestic payments system,” and “We think it is important that any potential CBDC could serve as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks.” 

On cryptocurrencies Powell was, as ever, generally dismissive, when he said that given their volatility, among other factors, they have not yet proved to be reliable forms of payment. He also added that stable coins, which are pegged to the US dollar among others, will face a lot more regulatory scrutiny. 

He summed up with the following statement: 

“Irrespective of the conclusion we ultimately reach, we expect to play a leading role in developing international standards for CBDCs, engaging actively with central banks in other jurisdictions as well as regulators and supervisors here in the United States throughout that process.”  

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.