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U.S. Fed Says No Plans for CBDC, but Evaluation of Costs and Benefits is Ongoing

11/21/2019
DCEBrief

In a recent response to a letter from U.S. Representative French Hill, Federal Reserve Chairman Jerome Powell confirmed that the central bank has no plans to issue its own central bank digital currency (CBDC). However, Powell acknowledged that the bank is continuing to evaluate the potential costs and benefits associated with a possible Fed digital currency.

In the letter, which was posted in a tweet by Politico financial services reported Zachary Warmbrodt, Powell addressed various issues raised by the congressman. After noting that several other central banks around the globe have been exploring their own possible CBDCs, Powell said that there are no plans to issue one in the U.S. He also cited several reasons why the Fed saw no urgent need to do so:

“Overall, we observe that characteristics that make the development of central bank digital currency more immediately compelling for some countries differ from those of the U.S. For example, in some countries there has been a rapid migration by consumers away from cash, while demand for cash in the U.S. remains robust.

Conversely, in some countries, central banks are considering issuing central bank digital currencies because there are not otherwise fast and reliable digital payment services widely available. The U.S. payments landscape is highly innovative and competitive, with many such options available for consumers.

Moreover, in the U.S. context, issuing a central bank digital currency for general use would raise important legal, monetary policy, payments policy, financial stability, supervision and operational questions that need to be considered carefully.”
Powell also noted concerns that a Fed-issued CBDC could negatively impact the financial sector if it led to the central bank providing any type of financial services directly to consumers.

The congressman’s letter had also asked about the Federal Reserve’s plans to respond in the event that digital fiat currencies or private cryptocurrencies began to “gain traction.” Powell cited the Fed’s ongoing experimentation with the technology and suggested that its efforts in that area would position the central bank to “be able to react more expeditiously to rapid developments in this arena.”