Stable cryptocurrency currencies can become systemically important overnight, says US Federal Reserve President Jerome Powell, which is why the Fed is determined to get its own digital currency from the central bank.
CBDCs are the banking sector’s answer to cryptocurrency stables. Although they are often hosted on the blockchain, they share little in terms of philosophical parity with their decentralized colleagues. CBDCs will be supervised by the banks that issue them and will be regulated by the laws of their respective jurisdictions.
In an interview with Yahoo Finance, Powell said that advances in technology have allowed private entities to create their own money – and that history has shown that this was something to be avoided:
“Technology has made this possible and effectively private sector actors can create the equivalent of digital money. We know that in the past, with private sector money, the public sometimes just thinks of it as money and, at some point, discovers that it is not money. This is a very bad thing that we need to avoid. “
Powell can imagine a scenario in which stablecoins are suddenly relevant to a large enough number of people to become “systemically important” overnight. He said the Fed does not yet know how it can respond to such an occurrence and admitted that it is nowhere near understanding the risks:
“[Stablecoins] can become systemically important overnight and we don’t start to have our arms around potential risks, how to manage those risks – and the public expects us to do so, and has every right to expect that […] It is a very high priority. “
However high a priority the launch of a CBDC may be, the Fed will not fall into the trap of trying to be the first. Russia, China, Sweden, Australia and the European Central Bank have taken steps to launch a CBDC (some are more advanced than others), but according to Powell, the US will always have a pioneer advantage because of the dollar’s status as a currency. world reserve:
“Since we are the world’s reserve currency, we really think we need to get it right and we don’t feel the need to be first. In effect, this means that we already have a pioneer advantage because we are the reserve currency. “
Powell’s relaxed approach to the prospect of a “CBDC gap” emerging among the world’s superpowers is not shared by everyone. In October, a leading Japanese finance minister warned that China’s digital currency could eclipse the world’s fiat money if the digital yuan gains the upper hand.
The president of the Chinese Financial Association rejected this idea, adding that the digital yuan was not like Libra and that he had no intention of replacing international currencies.
Any potential “Fedcoin” is still years away, according to Powell, who is determined to do it right, rather than fast – even if it means losing ground for private sector money in the meantime.
“We are determined to do this the right way, rather than quickly, and it will take some time […] Measured in years instead of months. “