Federal Reserve Chairman Jerome Powell said on Thursday the government was exploring the possibility of issuing a new type of digital currency amid the rise of cryptocurrencies.
Powell said the Federal Reserve will release a discussion paper in the summer of 2021 that will focus on the eventual creation of a digital central bank currency (CDBC). He said the decision was “the start of what will be a thoughtful and deliberative process.”
“Today we are in the midst of a technological revolution that is fundamentally changing our world, reshaping the way we communicate, access information and purchase goods and services,” Powell said in a video message. “As the central bank of the United States, the Federal Reserve is responsible for promoting monetary and financial stability and the safety and efficiency of the payments system.”
“In pursuit of these essential functions, we have carefully followed and adapted to the technological innovations which are now transforming the world of payments, finance and banking,” he added. “The Federal Reserve has studied the potential benefits and risks of CDBCs from different angles, including through technological research and experimentation. Our primary focus is on whether and how a CDBC can improve upon America’s already secure, efficient, dynamic and efficient. national payment system. “
CDBCs share some of the characteristics of cryptocurrencies, but are considered to be more stable and distinct due to some key differences. Technical differences aside, CDBCs are tied to the value of a specific currency and controlled by a central authority, unlike cryptocurrencies.
Powell noted that cryptocurrencies were not currently considered “a convenient way to make payments” due to several factors, including “fluctuations in their value.” He said so-called “stablecoins”, which can be linked to a currency’s value but lack centralized control over CDBCs, “always carry potential risks” to consumers and financial systems. and would require an “appropriate regulatory and supervisory framework” if more widely adopted.
A possible CDBC issued in the United States would serve as a complement to traditional cash and digital methods of transferring dollars, rather than replacing. Powell said the design of a CDBC “would require careful input and analysis,” including public comment, noting that the process could raise issues of policy, consumer protection, law and privacy. The planned discussion paper will address some of these concerns.
Regardless of whether the United States is creating its own CDBC, Powell expects the Federal Reserve to play “a leading role in setting international standards for CDBC.” Powell’s announcement came after China began testing its own government-issued CDBC, linked to the Yuan, in hopes of having it in place by the time of the 2022 Winter Olympics in Beijing. Some experts believe that an American CDBC will probably take much longer.
“It’s going to take a while to get it right,” David Treat, head of blockchain practice for Accenture, told CNBC. “We’re talking about a four or five year journey to real availability and use and a lot of learning that needs to happen by then to make sure the way it’s implemented matches social values and to the laws of each country. “
Newsweek contacted the Federal Reserve Board of Governors for further comment.