Jerome Powell, Chairman of the Federal Reserve, reaffirmed this week that he is committed to evaluating the costs and benefits of the digital dollar.
“Here at the Fed and in the US, we are committed to thoughtfully and carefully evaluating the potential costs and benefits of a central bank digital currency,” said Powell during his speech at a virtual conference hosted by the European Central Bank.
He further shared that the Fed has been actually actively participating with other central banks on this, adding: “We feel that’s been a very productive collaboration.”
“We haven’t made a decision to issue a CBDC, and we think there’s quite a lot of work yet to be done as we engage with public constituencies here in the US and around the world,” said Powell dashing any hopes of the US competing with China’s digital yuan which already had a series of pilot tests last month.
Because the US Dollar is “the world’s principal reserve’s currency,” Powell said they would approach the question of a digital dollar with “great care” and “it’s critical that we really get it right as opposed to trying to be the first.”
The main focus for the Fed is on how a digitized version of currency could improve what is “already a safe, effective, and dynamic payments system,”’ said Powell. He further added that in the US, there is still a “strong demand for cash.”
Earlier this week, Fed had released a “Central Bank Digital Currency: A Literature Review,” where it talked about exploring the intrinsic features of CBDC as a means of payment and store of value.
Another report this week came from Deutsche Bank in which it said that in the long term, “central bank digital currencies will replace cash.” But advanced economies need to overcome the challenges of low interest rates and privacy first to succeed.
The bank also said that while the EU has been talking about the need for a digital transformation, its efforts have been disappointing.
During the event, Christine Lagarde, President of the European Central Bank, also mirrored Powell’s sentiments saying they are “not racing to be first.”
But maintained that if it is going to facilitate cross-border payments and contribute to better monetary sovereignty, then “I think we should explore it.”
Her “hunch” is that it will come, but it will not be a substitute for cash rather be a “complement” to it.