Digital Currency Is a Divided Issue at the Federal Reserve
Federal Reserve officials seem increasingly divided over whether it should issue a digital dollar – a digital currency that goes directly back to the central bank rather than the private banking sector.
Speeches by several Fed officials show they have yet to align with the issue, even as Fed peers in China, parts of Europe and smaller economies like the Bahamas have created currencies digital or actively working on their broadcast. The Fed plans to release a report on the potential costs and benefits of a digital dollar later this summer.
Lael Brainard, a Fed governor appointed during the Obama administration, made it clear in her remarks last week that she envisions a future in which the U.S. central bank explores and issues a digital currency. But Christopher Waller, his colleague on the Fed’s board of governors and Trump’s candidate, made it equally clear in a speech Thursday that he wonders if it is necessary.
“The dollar is very dominant in international payments,” Ms. Brainard said during a speech in Aspen, Colo., Adding that she could not imagine a situation in which other countries are issuing digital currencies and issuing them. United States does not.
“It’s just that, I can’t understand that,” she said. “It just doesn’t look like a sustainable future for me. “
Mr Waller, on the other hand, suggested that a digital central bank bid could do little that the private sector cannot do and that the potential benefits of a digital dollar are likely overestimated, while the risks are substantial. He added that the United States did not have to worry about the US dollar being supplanted by China’s digital supply.
“I end up with the conclusion that a CBDC remains a solution in search of a problem,” Waller said Thursday, referring to a central bank digital currency. He also expressed concern that a central bank currency would give the Fed too much information about private citizens.
Mr. Waller is not the only one who is skeptical. Randal K. Quarles, the Fed’s vice chairman for oversight, also seemed dubious about the need for a central bank digital currency, describing the idea as a passing fad. Jerome H. Powell, the chairman of the Fed, has sometimes questioned whether such an offer was necessary, but more recently stressed the importance of investigating the idea and said he was “legitimately undecided.” .
Supporters of the central bank’s digital currency say it is essential for the United States to remain at the cutting edge of technology, although it is not yet clear what benefits these currencies will provide in practice. Some suggest that a digital Fed dollar could prevent stablecoins – private digital assets backed by a set of currencies or other assets – from becoming dominant and creating a big risk to financial stability.
But opponents fear that a central bank digital currency may not deliver benefits that the private sector does not or cannot provide and that it may introduce cybersecurity vulnerabilities, Waller said Thursday. .
Commercial banks have also pushed back on the idea, fearing that their consumer banking services will be supplanted by the Fed’s accounts and warning that such a situation will cause them to cut back on their lending. Mr. Waller – despite his general skepticism – did not seem sympathetic to this argument.
“There are a lot of ways for banks to raise funds,” Waller said, noting that it could affect banks’ profit margins, but he wouldn’t have a problem with it. “The idea is that if they compete, the funds don’t come out, so the mere existence of a CBDC may lower fees and increase deposits.”
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