US Fed Chairman Jerome Powell Hinges Digital Dollar’s Fate on Lawmakers
Jerome Powell, the U.S. Federal Reserve Chairman, has hinted that the Fed is eyeing a digital dollar, an initiative that will see the apex bank control digital assets.
According to the Federal Reserve chief, in the course of the year (2021), members of the public and lawmakers will likely debate the project.
Nationwide Consultations Needed
During a House Financial Services Committee hearing, which held on Wednesday, February 24, 2021, Powell admitted that there are many concerns surrounding the digital dollar project, hence the forum for lawmakers to engage with the public for common ground.
“This is going to be the year in which we engage with the public pretty actively, including some public events that we’re working on. In the meantime, we’re working on the technical challenges and also collaborating and sharing work with the other central banks around the world that are doing this.”
In the meantime, Powell revealed that the central bank is advancing on solutions to the technical challenges it has so far identified regarding the digital dollar, adding that it is also in talks with other central banks that are exploring or issuing the Central Bank Digital Currencies (CBDC).
Addressing why the Federal Reserve needs consultations from lawmakers before kickstarting the digital dollar, Powell explained that the health of other markets is essential to the US government, especially as it relates to creating a digital dollar.
“We could well need legislative authorization for such a thing. It isn’t clear until we see which way we’re going.”
Why the US Reserve is Eyeing CBDCs
It would be recalled that last year, while Powell was addressing his fellow panelists during a cross-border payments program that was hosted by the International Monetary Fund (IMF), he explained that the digital dollar would improve the payment system of the country by modernizing payment infrastructures.
Powell also mentioned that the digital dollar would be helpful in bridging the gap between the banked and unbanked, as it will reach consumers who are traditionally underserved by financial institutions. When asked why the Federal Reserve was yet to decide if the digital dollar was the way to go, Powell responded that,
“There's a great deal of work yet to be done as well as extensive public consultation to be had with all stakeholders before making such a decision.”
In spite of the fact that many central banks across the globe have already adopted the digital dollar policy, Powell maintained that the Federal Reserve is not in contention on who’s first to do it.
“I think it's more important for the United States to get it right than it is to be first. Getting it right means that we not only look at the potential benefits of a CBDC but also the potential risks and also recognize the important trade-offs that have to be thought through carefully.”
Digital Dollar Fuss
For the Federal Reserve and other apex banks, the primary objective for the consideration of the digital dollar is the need to limit the risks associated with cashless payments.
Should the digital dollar be institutionalized, the Federal Reserve will have a stronger and authoritative presence in the digital payments environment, which is expected to reduce the risk of fully relying on private payment systems for individuals.