US central bank wants to take its time with its own digital currency

US central bank wants to take its time with its own digital currency

The US central bank sees no time pressure for the introduction of its own digital currency.

Jerome Powell, the head of the US Federal Reserve, warns that stablecoins could become systemic sooner than expected. Nevertheless, or rather because of this, the „Fed“ wants to focus on quality rather than speed in the development of its own central bank digital currency (CBDC).

Stablecoins are cryptocurrencies that are linked to Bitcoin Bonanza an external asset, such as fiat currencies or gold, which gives them their namesake (value) stability. For this reason, they are particularly suitable as a means of payment.

Central bank digital currencies (CBDCs) are the central banks‘ answer to private-sector stablecoins, but although they are usually also created on a blockchain, they lack many of the characteristic features of cryptocurrencies. For example, CBDCs are not truly decentralised and independent, as they are under the control of the issuing central banks. In principle, therefore, they are a blockchain version of the respective national currency.

In the interview with Yahoo Finance, Powell explains in this context that technological progress has now enabled private companies to create their own currencies. However, such private currencies have proven problematic in the past:

„Technological progress makes it possible for private companies to print their own digital currency, so to speak. In the past, we have seen that the population understands these digital currencies as normal money, but at some point it becomes clear that it is not normal money. That is not good, which is why we need to avoid such a scenario.“

US central bank does not yet have a precise plan

Powell states that he could imagine stablecoins playing a big role sooner than expected and becoming downright „systemic“. However, he admits that the US central bank does not yet have a precise plan for how it would act in such a situation, as it is only beginning to understand the risks involved:

„Stablecoins could become systemic from now on, and we are still far from being able to cushion the risks it creates. The population expects us to be able to do this, and they also have a right to expect it. […] Accordingly, this is our top priority.“

But even this urgency is not prompting the „Fed“ to move quickly, although Russia, China, Sweden, Australia and the European Central Bank (ECB) are already researching and working on corresponding digital currencies. The Chinese central bank, in particular, is rushing ahead with great strides, but Powell is unimpressed because the USA would have a decisive advantage anyway due to its status as the global reserve currency:

„Because we are the global reserve currency, we feel obligated to get this thing right. We have no pressure to be the first. Because we are the global reserve currency, we have a first mover advantage anyway.“

Not all observers share Powell’s confidence, however. A former Japanese finance minister, for example, had warned in October that the Chinese digital currency could achieve a decisive lead if the digital yuan is the first to take off.