US Fed: CBDC a ‘very high priority’ to combat bad private sector money

3 min read

Table of contents

    Share this article

    By Amee Mehta
    Feb 17th, 2021
    In an interview with Yahoo Finance, The US Fed Chairman Jerome Powell shared the take of the Federal Reserve on stablecoins. He said that the United States Federal Reserve needs a CBDC to help manage the 'potential risks’ that might come along after once the stablecoin technology becomes ‘systematically important’. A CBDC is a digital form of a fiat currency of a particular nation represented by a token on the blockchain. It is a centralized digital currency that is issued and regulated by the central monetary authority of the country. With a uniquely identifiable unit like a paper currency, a CBDC is also prevented from counterfeit. Like other forms of currency, it also is part of the base money supply. In other words, CBDCs could be thought of as the bridge between the banking industry with cryptocurrency stablecoins. Although they are represented by tokens built on blockchain, their features don’t align with their decentralized counterparts. CBDCs are managed by the central banks that issue them as a central party, ironically built on a technology that enables decentralization. Jerome Powell addressed the misuse of advances in technology by some private sector entities that create their own money and said that history advocates the need to avoid it. “Technology has made this possible and effectively private sector actors can create the equivalent of digital money. We know in the past with private sector money, the public sometimes just thinks of it as money, and then at some point they find out it’s not money. That’s a very bad thing we need to avoid.” The US Federal Reserve Chairman acknowledged the massive possibility of stablecoins becoming relevant enough to a large enough number of people to become “systemically important” overnight. He also added that the Fed is still far from understanding the potential risks of such a scenario let alone knowing how to respond. Also Read: DeFi Guide for Beginners “[Stablecoins] could become systemically important overnight and we don’t begin to have our arms around the potential risks, how to manage those risks — and the public will expect that we do, and has every right to expect that […] It’s a very high priority.” But the US Fed is highly unlikely to be the first central bank to launch its CBDC, even with a priority as high as Jerome Powell says it is. Central banks of Russia, China, Sweden, Australia, and the European Union have all taken steps towards launching a digital fiat currency. Powell also added that the dollar being the reserve currency the US will have a first-mover advantage in launching a CBDC first. “Since we are the world’s reserve currency, we actually think we need to get this right and we don’t feel an urge or a need to be first. Effectively it means we already have a first-mover advantage because we’re the reserve currency.” Also Read: Stablecoin Development Company On a closing note, the US Fed Chairman said that the Fed is more focused on launching the CBDC right rather than launching one fast. “We’re determined to do this right rather than quickly, and it’ll take some time […] Measured in years rather than months.”

    Hire Industry Experts

    Hire Us Now

    Get started with Minddeft

    Contact Us Now