In creating a cross-border digital currency for the Federal Reserve System (Fed), it is more important not to rush its issuance but to do it with the right approach, said Fed Chair Jerome Powell.
.@KGeorgieva: Technology is accelerating and changing our lives. And yet, #CrossBorderPayments remain slow, opaque, costly, and inaccessible to many. https://t.co/EFHUv21SWz #IMFmeetings https://t.co/HhmJWwxVkR
— IMFLive (@IMFLive) October 19, 2020
Speaking on a panel discussion on digital payments organized by the International Monetary Fund, he stressed:
“For the United States, it is more important to get everything right than to be first.”
Powell explained that the right approach involves studying not only potential benefits of CBDC but also possible risks. In his words, there will be “important trade-offs” that must be carefully considered.
“We bear responsibility to both the country and to the world that any steps taken for the U.S. digital currency be safe,” Powell noted.
The Fed chair outlined several policy and operational questions that need to be comprehensively analyzed before issuing a CBDC:
- How to protect the digital currency from cyberattacks, counterfeiting, and fraud?
- What impact will CBDC have on monetary policy and financial stability?
- By what means can illicit activity with CBDC be prevented while ensuring user privacy and security?
Powell said that, although the Fed has not yet decided to issue a digital currency, it is actively conducting research on the topic, both on its own and in partnership with other central banks and the Bank for International Settlements.
The Fed chief noted that the Federal Reserve Bank of Boston, in collaboration with the Massachusetts Institute of Technology is developing a hypothetical CBDC.
“These types of experiments help our understanding of the risks and benefits of CBDC, measuring trade-offs between different designs and systemic mechanisms and assessing risks to safety,” Powell added.
Earlier, the Fed, the ECB, the Bank of England, the Bank of Canada, the Bank of Japan, as well as the central banks of Sweden and Switzerland, together with BIS presented a report on the fundamental principles and key characteristics of CBDC. The working group was established in January 2020.
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