In the News

Fed Reserve Set to Evaluate Digital Dollar Although Benefits Are Still Unclear According to the Chairman

11/22/2019
Tunf

The chairman of Federal Reserve, Jerome Powell said his institution is checking into the possibility of developing a central bank digital currency (CBDC).

In a response letter written in Nov. 19 letter regarding questions from lawmakers Rep. French Hill (R-Ark.) and Rep. Bill Foster (D-Ill.) in late September, Powell said the Fed has noted the efforts of other nations to explore a CBDC option, and that it continues to “carefully analyze the costs and benefits of pursuing such an initiative in the U.S.”

In their letter which was addressed to Powell, Hill and Foster had expressed concerns over the potential risks to the dollar if another nation or private company creates a widely used cryptocurrency, and asked whether the central bank is look pursuing such an option.

Although the U.S. central bank is checking into whether a fully digital dollar would offer benefits to the U.S., Powell said the Fed is not actively developing one. Further, a digital national currency may not offer advantages to the U.S. that it may do to other nations.

The introduction of a digital dollar would also raise “important” questions regarding law, monetary policy, financial stability, regulation and operations, the Fed chief said. For example, would a “general purpose” CBDC be classed as legal tender and what are the “rights and obligations” of participants in such a system?


Also, the digital dollar may raise concerns about IT security and privacy if, unlike cash, all the Fed must maintain a record of all transactions made with the CBDC. Ushering in the new technology would also mean there would have to be decisions made over whether the digital currency would earn interest, and would its supply be capped.

The bottom line is that Powell concluded that the Fed has “not identified potential material benefits of [a] general purpose CBDC to the implementation of monetary policy relative to our existing tools.”