Powell advances Fed consideration of US central bank digital currency

Jay Powell on Thursday accelerated the Federal Reserve’s consideration of a possible digital version of the dollar that would be controlled by the US central bank.

The Fed chair said it would seek public comment on the idea, amid pressure from some US lawmakers and growing interest in so-called central bank digital currencies (CBDCs) around the world.

In a rare video statement released on the Fed’s website, Powell stressed there were potential benefits and pitfalls associated with digital currencies, and highlighted the growth of so-called stablecoins, private digital currencies pegged to the dollar, which he said could pose a threat to the financial system.

“The effective functioning of our economy requires that people have faith and confidence not only in the dollar, but also in the payment networks, banks, and other payment service providers that allow money to flow on a daily basis,” he said.

“Our focus is on ensuring a safe and efficient payment system that provides broad benefits to American households and businesses while also embracing innovation.”

The Fed has been considering a central bank-issued digital currency for some time, but it has been seen as more sceptical than some other countries’ monetary authorities. China is already piloting a digital renminbi.

Powell said any CBDC should serve “as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks”.

The Fed would issue a paper this summer “to stimulate broad conversation”, he said, and seek input on issues related to payments, financial inclusion and privacy, among other topics.

He added the Fed would seek to play “a leading role” in the evolution of international standards for CBDCs.

Powell indicated the Fed was closely monitoring private sector payments innovations, including the launch of stablecoins and the price gyrations of cryptocurrencies such as bitcoin.

“Cryptocurrencies have not served as a convenient way to make payments, given, among other factors, their swings in value,” he said. “Stablecoins aim to use new technologies in a way that has the potential to enhance payments efficiency, speed up settlement flows, and reduce end-user costs — but they may also carry potential risks to those users and to the broader financial system.”

As stablecoins proliferate, he urged enhanced regulatory oversight, which “includes paying attention to private-sector payments innovators who are currently not within the traditional regulatory arrangements applied to banks, investment firms, and other financial intermediaries”.

Powell said the forthcoming discussion paper would mark the “beginning of what will be a thoughtful and deliberative process”, and vowed to hear from a “wide range” of voices before making any decision.

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