Federal Reserve Chairman Admits Considering The Digital Dollar, But Doesn’t See Major Benefits

On Tuesday, November 19, Chairman of the Federal Reserve Jerome Powell said that the central bank is weighing the options of having a central bank digital currency (CBDC).

Powell’s response comes in the form of a letter responding to the questions by lawmakers Rep. Bill Foster (D-Ill.) and Rep. French Hill (R-Ark.). In his letter Powell said that the Federal Reserve is careful observing the efforts initiated by other nations to pursue a CBDC and is "carefully analyzing the costs and benefits of pursuing such an initiative in the U.S.”

Earlier the two representatives had raised concerns if any other big organization or country launches its digital currency. The representative said that such a scenario would threat the USD’s dominant position in the global economy.

Powell said that the Fed is currently weighing out options what benefits the Digital Dollar can bring to the table. As a result, the Fed has yet not started developing it. Powell said that the digital form of a national currency may not bring significant advantage to the U.S. as it may to other nations.

Powell added that some countries might see "rapid migration by consumers away from cash, while demand for cash in the U.S. remains robust”. On the other hand, the existing payments systems in a few jurisdiction might me slow and unreliable which is not the case for the U.S.

The Fed chief added that a Digital Dollar can raise some “important” questions regarding financial stability, monetary policy, law, regulation and operations. Other questions with the use of CBDC would be about privacy and IT security. Besides, the Fed also needs to decide if a CBDC would earn interest and how its supply should be capped.

Furthermore, Powell also 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." 

Although Facebook has been having a tough time dealing with the regulators on its native Libra cryptocurrency, it has certainly stirred up the momentum and demand for digital currencies.

Governments across the globe are seriously considering having a central bank digital currency (CBDC) which can probably give them an economic edge. With the ongoing U.S-China trade war, the Asian economic giant has accelerated its work on its CBDC.

The People’s Bank of China is actively working on the Digital Yuan Project.