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Fed's Powell Says in Letter to Congress Fed Not Creating Digital Currency

11/21/2019
Morningstar

Federal Reserve Chairman Jerome Powell said in a letter to a congressman on Tuesday that the U.S. central bank doesn't currently have plans to launch a digital currency and sees the adoption of something like it difficult in the U.S.

Mr. Powell's comments come from a letter to Rep. French Hill (R., Ark.). In that letter, Mr. Powell wrote that the Fed is monitoring issues around central bank digital currencies "closely" but added "we are not currently developing a central bank digital currency."

Mr. Powell explained in the letter 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 one thing, Americans remain more committed to cash than other nations going down the digital money path, he wrote.

Other nations also have less reliable payment systems, Mr. Powell added. "The U.S. payments landscape is highly innovative and competitive, with many such options available for consumers," the Fed leader wrote.

And then there are issues with rules and regulations. "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."

The rise of all the various private cryptocurrencies have put official central bank digital currencies on the table. Some other nations are moving closer to their adoption. For example, there's Sweden's E-krona, which that nation's central banks said "would give the general public access to a digital complement to cash, where the state would guarantee the value of the money."

Advocates for central bank digital currencies see many benefits. Payments could be transacted more quickly. Also, a central bank offering would potentially have more credibility than highly volatile private-sector offerings, which are very difficult to use for real-world things like buying and selling services and goods.

Central bank digital-currency supporters also see upsides to central bank monetary-policy objectives. Official digital money could come with accounts directly at the central bank, of the sort only now available to banks. Instead of relying on banks to pass on changes in interest-rate policy, some believe the Fed could take its interest-rate tools directly to the consumer level via these sorts of accounts.

Mr. Powell noted in the letter that "while the Federal Reserve fosters the safety and efficiency of the payment system by offering interbank payment services, direct provision of payment services to households and businesses would represent a major change."

Interest in a Fed digital currency has waxed and waned over recent years. In 2017 then-New York Fed leader William Dudley said it was an option that was on the table for the central bank, even as he later lamented what he saw as "speculative mania" in private-sector offerings.

Chicago Fed leader Charles Evans recently weighed in on the merits of a central bank digital currency. Like Mr. Powell he doesn't see a Fed digital dollar as imminent, even as there remain important issues to explore.

"A central bank digital currency could conceivably address some of the barriers to widespread use," Mr. Evans said in a speech on Nov. 14. "A central bank's nationwide reach could spur widespread adoption, and government backing could ensure the currency would be default free."

In a statement, Rep. Hill said "I'm pleased to learn that the Federal Reserve is carefully exploring the costs and benefits of developing a U.S. digital currency." Adopting such a currency "would have far-reaching implications on every aspect of America's monetary policy and requires a deep level of analysis to ensure proper implementation."