- Fed Chairman Jerome Powell says a possible CBDC will be a complement to the US dollar
- Federal Reserve to present a discussion paper on a digital dollar this summer
Federal Reserve Deliberates On What Makes A Currency Valuable
The US Federal Reserve is considering the idea of creating its own cryptocurrency, a digital dollar. Fed Chairman Jerome Powell has reiterated the central bank does not see Bitcoin as a replacement for the US dollar, rather as a highly volatile and speculative asset. In this light, Mr. Powell last week announced the Federal Reserve will begin exploring whether it is necessary for the Fed to develop its own central bank digital currency (CBDC).
“The effective functioning of our economy requires that people have faith and confidence not only in the dollar, but also in the payment networks, banks, and other payment service providers that allow money to flow on a daily basis,” Jay Powell said last week in a rare video posted on the Federal Reserve’s website.
A central bank digital currency (CBDC), according to Chairman Powell, should not serve as a replacement of fiat. Then, rather it should “complement to cash and current private-sector digital forms of the dollar, such as deposits at commercial banks.”
Forthcoming Paper on Digital Dollar To Shed More Light
To advance its work on a possible digital US dollar, the Federal Reserve will issue a research paper this summer. It will highlight the risks and the benefits of creating a CBDC. Jay Powell vowed to seek public comment in order to “stimulate broad conversation”.
“Cryptocurrencies have not served as a convenient way to make payments, given, among other factors, their swings in value,” the Fed Chair said. “Stablecoins aim to use new technologies in a way that has the potential to enhance payments efficiency. [..] It will speed up settlement flows, and reduce end-user cost. They may also carry potential risks to those users and to the broader financial system.”
To mitigate potential risks, Mr. Powell urged for stricter oversight by regulators. This includes “paying attention to private-sector payments innovators who are currently not within the traditional regulatory arrangements applied to banks, investment firms, and other financial intermediaries”.
The forthcoming paper on a digital dollar would mark the “beginning of what will be a thoughtful and deliberative process”. Finally, Mr. Powell is expected to collect a wide range of public opinions before taking the process any further.