Federal Reserve Chairman Jerome Powell has issued a notice to the digital token market: The Federal Reserve is stepping up efforts to develop a digital dollar that can compete with the increasingly popular privately issued “stable currency” for payment. Powell said on Thursday that the Fed plans to release a discussion paper “outlining our current views on digital payments”, focusing on the pros and cons of central bank digital currencies (CBDC). He added that the Federal Reserve plans to work with central banks and regulators in the United States and abroad to “play a leading role in the development of international standards for CBDC.”
In essence, they will not replace cash or other official forms of legal tender, but can compete with banknotes or electronic entries in bank books. CBDC will be a new type of bank liability, located on the balance sheet of a commercial or central bank, and can be designed for use by businesses and the public. The Fed lags behind other central banks in establishing CBDC. Last year, China began testing the digital version of the renminbi. Sweden is testing a digital electronic krona, aiming to make it circulated within a few years. Other central banks exploring digital currencies include the European Central Bank, the Bank of England, and the Bank of Japan-the Bank of Japan is already testing the digital yen.
Powell’s remarks indicate that the Fed aims to get the conversation in the U.S. moving from the academic to policy-making. Congressional Democrats have been pushing the government to develop a CBDC, arguing it will facilitate financial inclusion among the “unbanked” and help reduce onerous banking and transaction fees.
Powell’s speech showed that the Fed’s goal is to shift American dialogue from academia to policy making. Congressional Democrats have been urging the government to develop a CBDC, believing that it will promote financial inclusion in “unbanked” and help reduce onerous banking and transaction costs. Last summer, the Boston Federal Reserve and the Massachusetts Institute of Technology launched a project to study CBDC. Their survey results are expected to be released in the third quarter. Powell also warned that the digital token market may have more regulatory measures.
He said that due to the large fluctuations in the price of Bitcoin, cryptocurrencies like Bitcoin are not a convenient payment method. However, stablecoins linked to the U.S. dollar or another currency are emerging as competitors to the U.S. dollar.
Stablecoins usually use reserve currencies as collateral, but they do not have the support of the central bank, and may not have the support of sufficient reserves held by the coin issuer. Powell said: “As the use of stablecoins increases, we must also pay attention to the appropriate regulatory framework.” He added that regulators will begin to “focus” on payment applications and platforms that may not be regulated by banks or other financial companies. So far, Powell’s remarks do not seem to shake the crypto market. Bitcoin has remained solid after his remarks, with the most recent transaction price of $40,239, which has remained flat in the past 24 hours.