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U.S. Federal Reserve Chair Jerome Powell said Congress will eventually receive guidance from the Fed on how it could implement a central bank digital currency (CBDC).
Speaking before the U.S. House Committee on Financial Services, Powell said, “I think it’s something we really need to explore as a country,” adding that the prospect of a CBDC’s issuance “should not be a partisan thing.”
“We’re doing a great deal of work,” he said, mentioning that once the guidance is finalized, it will be Congress's responsibility to draft legislation authorizing its implementation into the U.S. financial system.
For years, officials have mulled over the idea of a digital currency backed by the U.S. government and weighing its potential risks and benefits. The implementation of a ‘digital dollar’ could have a seismic impact on the crypto landscape and expose the wider population to the experience of conducting financial transactions using digital currencies.
“It's a very important potential financial innovation that will affect all Americans,” Powell said at the meeting. “Our plan is to work on both the policy side and the technological side in coming years and come to Congress with a recommendation at some point.”
A digital dollar proposal
The Fed has been considering the prospect of a digital dollar since 2017. Earlier this week, congressman Jim Himes (D-Ct.) released a proposal on how the U.S. could issue and implement a CBDC, claiming that it could help preserve the U.S. Dollar’s role as the leading reserve currency throughout the global economy.
“The longer the United States government waits to embrace this innovation, the further we fall behind both foreign governments and the private sector,” Himes said in a press release. “It is time for Congress to consider and move forward with legislation that would authorize a U.S. CBDC.”
When asked by Himes if he had taken a look at the proposal, Powell responded by saying that he had printed it out, had the paper with him, but had not yet been able to “read it carefully.”
Himes’s statements regarding U.S. dollar supremacy echo those made by Powell earlier this month at a research conference sponsored by the Federal Reserve Board.
“In light of the tremendous growth in crypto-assets and stablecoins, the Federal Reserve is examining whether a U.S. central bank digital currency would improve on an already safe and efficient domestic payments system,” Powell said. “As the Fed's white paper on this topic notes, a U.S. CBDC could also potentially help maintain the dollar's international standing.”
In May, the Fed’s vice chair, Lael Brainard, delivered remarks on the potential benefits and risks of a digital currency issued by the U.S. Central Bank before the House of Representatives’ Committee on Financial Services, stating its implementation would be feasible.
“In some future circumstances, CBDC could coexist with and be complementary to stablecoins and commercial bank money by providing a safe central bank liability in the digital financial ecosystem, much like cash currently coexists with commercial bank money,” she said.
Such a CBDC would need to be “privacy-protected, intermediated, widely transferable, and identity-verified,” Brainard added.
Her comments follow the release of a paper by the Fed on the potential pros and cons of a CBDC in January, which invited public comment on “whether and how a CBDC could improve the safe and effective domestic payments system.”
However, it could still be some time before a CBDC finds its way into Americans' digital wallets. "The timeline for a CBDC is likely close to a decade if not longer," Messari senior research analyst Dustin Teander told Decrypt. He pointed to repeated delays in implementing the Fed's planned inter-bank transfer system, FedNow, which has been on the cards since 2013. "This is technology the banking world understands," he said, while CBDCs are "a brand new technology that isn’t well integrated into the current banking technology system." Given the research and development timelines involved in creating a digital dollar, "it will be a long while before you’re buying everyday items with a U.S. government-issued CBDC."