Questions have recently been swirling in the U.S. around whether the Federal Reserve, the central banking system of the country, would eventually push forward on digitizing the dollar via blockchain tech.
Now, Federal Reserve Chairman Jerome Powell has given his clearest positions on how the Fed is approaching the prospect of a digital dollar.
This week, Chairman Powell gave answers to Congress on questions related to the extent that the Fed was considering its own digital currency. Those questions had been delivered to the Chairman this past fall by U.S. Representatives French Hill (R-Arkansas) and Bill Foster (D-Illinois), who at the time asked Powell to clarify various implications around a digitized USD.
In his new congressional responses, the Fed’s leader said America’s central banking system was currently only analyzing the pros and cons of turning the dollar into a state-backed digital currency, also known as a central bank digital currency (CBDC).
Simultaneously, Chairman Powell confirmed the Fed had not yet crossed the threshold into developing a CBDC but did not entirely rule out that such an effort might start at a later date.
— Zach Warmbrodt (@Zachary) November 20, 2019
The Chairman wrote:
“[T]he Federal Reserve is not currently developing a U.S. dollar central bank digital currency … but continues to carefully evaluate the costs and benefits of issuing a general purpose CBDC, defined as a new type of Federal Reserve liability that could be held directly by households or businesses … we are carefully monitoring the activities of other central banks to identify potential benefits that may be relevant in the U.S. context.”
The Fed’s Eyes Are Peeled
Of course, there’s no shortage of CBDC activities to scrutinize as of late.
Indeed, a growing trend this year has been seeing central banks ramp up their analyses or development activities around digital currencies. Some countries where such work is already taking place include China, Russia, Turkey, Singapore, and Japan. Calls for a programmable euro have also been growing in the European Union.
Moreover, an increasing amount of research is being conducted around CBDC’s in general. Last month, a report funded by IBM found that it was likely that a central bank (albeit a smaller one at first) would roll out a fully fledged CBDC in the next few years.
Likewise, a recent report from two International Monetary Fund (IMF) officials outlined how stablecoin projects might eventually achieve their “pegs” by directly underpinning their projects with central bank reserves.
A person of Chairman Powell’s stature is surely abreast of all of these developments, and it will be key to watch how they might influence his thinking going forward.
Lawmakers Ready to Push Ahead
After Chairman Powell submitted his latest congressional answers, the legislators who he responded to — Rep. Hill and Rep. Foster — signaled their interest in seeing the Fed continue to pursue its considerations of a digital dollar. Accordingly, Rep. Hill argued the central bank’s work should not be rushed.
“This decision would have far-reaching implications on every aspect of America’s monetary policy and requires a deep level of analysis to ensure proper implementation,” said Hill.
Showing a bit more urgency in his comments, Rep. Foster said his focus was on making sure that the U.S. didn’t fall behind other major nations in the digital currency arena.
“My main concern is that we are not caught flat-footed by fast moving developments in other countries that may put our economy at a competitive disadvantage and threaten the primacy of the U.S. dollar,” Rep. Foster noted.
Notably, the legislators’ campaign for a digital USD comes of the heels of former CFTC director Christopher Giancarlo penning an op-ed wherein he similarly called for moving the dollar onto blockchain tech.