‘We don’t need to rush’ on Fed digital dollar, Powell says

WASHINGTON — Though Democratic leaders have endorsed the concept of a government-operated digital currency to give underserved consumers more banking options, Federal Reserve Chair Jerome Powell indicated the central bank will take its time to study the idea before moving forward.

Speaking on a virtual panel hosted by the Bank for International Settlements Monday morning, Powell said it is better to weigh all the factors that would go into a central bank digital currency than racing to become the first county to offer one to the public.

“We have an obligation to be on the cutting edge of understanding the technological challenges, as well as the potential costs and benefits, of issuing a CBDC," Powell said, using the abbreviation for central bank digital currency. But, he added, "Because we’re the world’s principal reserve currency, we don't need to rush this project, and we don't need to be first to market.”

Powell said a dollar-backed central bank digital currency "would have potentially large implications here and around the world."

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"We'll be sure to think carefully about all of that and engage very broadly with the public, around the world and particularly here in the United States, before we even approach a decision,” he said.

While officials such as Treasury Secretary Janet Yellen and Senate Banking Committee Sherrod Brown have argued such an instrument could be used to expand access to the financial system, banks are increasingly worried that a digital dollar could replace them as financial intermediaries.

On the panel, Powell reiterated his desire to have congressional backing before the Federal Reserve actually issues a digital dollar, preferably in the form of new legislation. “We would not proceed with this without support from Congress, and I think that would ideally come in the form of an authorizing law, rather than us trying to interpret our law, to enable this,” Powell said.

Later in the discussion, Powell said a Fed digital dollar would not be intended as an alternative or competitor to nongovernment cryptocurrencies such as bitcoin and Ethereum.

“Our work on CBDCs is not primarily motivated by the appearance on the scene of cryptocurrencies and stablecoins,” he said.

Powell noted that certain stablecoins backed by sovereign currencies could one day play a larger role in the global financial system, but he cautioned that such assets could not replace the function of central bank currency.

“Stablecoins may have a role to play with appropriate regulation, but that role will not be to form the basis of a new global monetary system,” Powell said. “Private stablecoins are not going to be an appropriate substitute for a sound monetary system based in central bank money.”

Powell also stressed the need for significant regulatory scrutiny before any privately issued stablecoin achieves widespread global use.

“Is regulation where it needs to be on global stablecoins yet? It's not, but we're making progress,” he said.