In the development of a cross-border digital currency, it’s more important for the United States to get it right than be first. This was a statement from U.S. Federal Reserve Chair Jerome Powell on Monday.
They do think it’s more important to get it right than to be first, said Powell. And getting it right means that they not only look at the potential benefits of a CBDC. But also the possible risks, and recognize the vital trade-offs that have to be thought through carefully.
These were stated by Powell in a panel discussion on digital payments. The panel was hosted by the International Monetary Fund.
He said it is vital the Fed assess what impact a CBDC might have on a range of critical issues.
In addition to reviewing the benefits are some quite difficult policy and operational questions that need to be thoroughly evaluated. For instance, the need to protect a CBDC from cyber attacks, counterfeiting and fraud.
Also, the question of how a CBDC would affect monetary policy and financial stability. Moreover, how a CBDC could prevent illicit activity while also preserving user privacy and security.
The Fed, he said, has made no decision yet on issuing a digital currency. It actively participates in research into the prospect in partnership with other central banks. That includes the Bank for International Settlements.
Furthermore, it is conducting research on its own. Powell said the set of experiments is being carried out at the board of governors here in Washington, D.C.
Complementary efforts are also now in the works, for instance through the Federal Reserve Bank of Boston. In collaboration with researchers at the Massachusetts Institute of Technology, it is developing a hypothetical central bank digital currency.
Issuing Digital Currencies
The world’s largest central banks are experimenting with the idea of issuing digital currencies. Even some of the smaller ones are too.
Most projects are still at an early stage. Central banks have changed into higher gear in the past year. This move started after Facebook announced plans to create its own virtual token and the pandemic boosted digital payments.
Their main worry is losing control of the payment system. That will be if private currencies such as the Facebook Libra coin will be widely adopted.
China has been ahead of other major economies in experimenting with a digital currency. It has publicly said it aims to become the first to issue one. That is to reduce its dependence on the global dollar payment system.
Efforts were pushed to catch up with China and private projects such as Facebook’s. Last week, seven major central banks laid out key principles for issuing CBDCs.