Federal Reserve Chair looking into the benefits of digital currencies

Daniel Fowler
October 19, 2020

While speaking on an International Monetary Fund panel, Federal Reserve chairman Jerome Powell revealed the news. "Complementary efforts are also now underway, for example through the Federal Reserve Bank of Boston, which, in collaboration with researchers at MIT (Massachusetts Institute of Technology), is developing a hypothetical central bank digital currency".

During a meeting on Monday hosted by the International Monetary Fund discussing digital payments, The Fed Chair indicated that it was more important for the United States to get it right than be first in reference to digital currencies. The Spanish Central Bank, which plans to analyze the effects on the financial system and economy of the implementation of a digital central bank currency in 2020 and 2021, will also address various design proposals and issues related to digital identity. "Moreover, we have robust and mature financial and banking sectors, and we have a highly banked population so that many - although not all - already have access to the electronic payments system".

A key part of this program is the monitoring framework for money and payments and the contingency planning for a central bank digital currency (CBDC).

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"In addition to assessing the benefits - and there may well be benefits - there are also some quite hard policy and operational questions that need to be thoroughly evaluated,"Mr Powell said".

However, Powell claimed that they had to do it right rather than doing it first. "We can be, and we must be at the forefront of research". "Just to mention a few, I would mention the need to protect a CBDC from cyber attacks, counterfeiting and fraud, the question of how a CBDC would affect monetary policy and financial stability, and also how could a CBDC prevent illicit activity while also preserving user privacy and security".

But Powell said the Fed has a special need to be cautious since the U.S. dollar is a global reserve currency, used by companies and central banks worldwide. "So they're not simple questions and the answers are going to need to be comprehensively understood". Central Bank digital currencies are coming, and they will change everything... But the concept gained traction when Facebook announced its Libra cryptocurrency project in 2019 with the aim of creating a single global digital currency.

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