Federal Reserve Is Moving Forward with its Digital Dollar Plan; Starting with Publishing a Paper on CBDC
Talking about stablecoins' potential to enhance the payments system, Chairman Jerome Powell said they also “carry potential risks” to its users and the broader financial system.
The Federal Reserve might be relatively slow in its planning for the digital dollar, but it is surely making some moves in this direction.
The latest move involves the central bank planning to publish a paper this summer on the “possibility of issuing” central bank digital currency.
Chairman Jerome Powell said the Fed has been “carefully monitoring and adapting” to those innovations. Powell said in a video message accompanying the announcement,
“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.”
“Our focus is on ensuring a safe and efficient payment system that provides broad benefits to American households and businesses while also embracing innovation.”
Demand for digital dollars has never been higher https://t.co/6wqCQqi9xg
— Joe McCann ◎ (@joemccann) May 20, 2021
The Fed has been exploring the potential benefits and risks of CBDCs from a variety of angles for several years, said Powell adding, the focus is on how a CBDC could improve the domestic payments system and that it serves as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar.
Powell has reiterated on several occasions that instead of following others, like China which is leading the race of CBDC, they would be cautious, giving doing things right instead of fast more importance.
According to David Treat, leader of the blockchain practice for Accenture, which is leading public-private research initiative into CBDCs, it will take about four-five years to do it right.
Powell referenced the growing popularity of cryptos like Bitcoin but maintained that they remain inefficient payment mechanisms.
When it comes to stablecoins, they have the potential to enhance payments efficiency, speed up settlement flows, and reduce end-user costs, but they also “carry potential risks to those users and to the broader financial system,” reads the transcript.
According to him, these technological advances offer new possibilities to central banks or a CBDC designed for public usage.
“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 the U.S. CBDC, taking account of the broader risks and opportunities it could offer,” Powell said. “The paper represents the beginning of what will be a thoughtful and deliberative process.”