Federal Reserve Chair Jerome Powell says that the Central Bank’s exploration of a ‘Digital Dollar’ remains a high-priority project.
Powell made the comments during the institution’s semiannual report to the Senate Banking Committee, where he gave very broad updates on the Fed’s monetary policy. Following his prepared address, Powell fielded a range of questions from the committee.
United States senator Bill Hagerty raised a question directed at the Federal Reserve’s attitude and progress towards exploring the use and issuance of a ‘Digital Dollar’. Hagerty asked Powell for his personal perspective on whether the Federal Reserve should develop a ‘Digital Dollar’ that is directly held and used by American individuals and companies and not handled by intermediary financial institutions.
“We are looking carefully, very carefully at the question of whether we should issue a Digital Dollar and it’s something that Central Banks around the world are looking at and doing so appropriately because technology now enables us to do that. It also enables private sector actors to create their own digital-quasi-money type of instruments,’ Powell replied.
“There are significant technical and policy questions to do with how we would go about doing that. I would say that we’re committed to solving the technology problems and to consulting very broadly with the public and very transparently with all interested constituencies as to whether we should do this.”
America has a responsibility to develop a trusted Digital Dollar
Powell also said that America’s long-held central role as a pillar of the global economy and the US dollar’s status as the world’s generally accepted reserve currency puts pressure on the country to play a leading role in driving technological innovation.
As various countries around the world explore and develop their own Central Bank Digital Currencies (CBDCs), there has been a lot of talk about first-mover advantage. China has become a front-runner in the race to develop and issue a state-backed digital currency, but Powell said that the Federal Reserve would not rush its own process in researching, testing and issuing its own CBDC.
“I would also say that we are the world’s reserve currency and we have a responsibility to get this right. We don’t need to be the first, we need to get it right and this is something we’re investing time and labour in right across the Federal Reserve system,” Powell said to senator Hagerty.
“You may know that the Federal Reserve Bank of Boston has a partnership with MIT looking at one particular thing. We’re doing research here at the board, it does hold out the prospect of the things you mentioned which are very positive. It could help with financial inclusion as well.”
Powell then highlighted the challenge of integrating a new payment system like a CBDC and the potential for this kind of move creating undesired effects on the American and global economy. Nevertheless the Federal Reserve chair highlighted the importance of its research and development of a CBDC.
“At the same time you want to avoid creating things that might be destabilizing or that might draw funds away from the banking system. We have a banking system which intermediates between savers and borrowers – we want to be careful about what the implications are of what we do. It’s a very high priority project for us.”
The full Federal Reserve report to the Senate Banking Committee can be watched here. Hagerty’s question relating to a Digital Dollar and Powell’s response can be found at the 01h39m mark.