In brief
- Fed Chair Jerome Powell testified before the House Financial Services Committee this morning.
- He was asked about a potential digital dollar.
- If it's developed, said Powell, it won't undermine the existing banking system.
In testimony before the House Financial Services Committee this morning, Federal Reserve Chair Jerome Powell said a potential digital dollar shouldn't "undermine" private banks.
Powell was giving his semiannual report to Congress, and responding to a question from Rep. Patrick McHenry (R), who serves North Carolina's 10th congressional district, about how a potential digital dollar might conflict with the financial system as it exists now.
"One thing we need to be very mindful about is that we have a functioning financial system and a banking system and capital markets which intermediate between savers and borrowers, and they're the best markets, and I would say the strongest banks in the world," said Powell. "We need to be careful with our design of the digital dollar that we don't create something that will undermine that very healthy market-based function."
What Powell and McHenry mean by a "digital dollar" is essentially a CBDC—a central bank digital currency. These are state-issued, much like existing physical currencies. And unlike Bitcoin, CBDCs don't necessarily rely on blockchainblockchain tech. Projects like the digital dollar are already being researched around the world, and China has already begun piloting its own CBDC, the digital yuan.
In the past, Powell's line about whether the Fed plans to develop a CBDC has been that there's no rush: since the dollar is the world's reserve currency, he's said, the US can afford to watch CBDC experiments play out in other countries before developing its out.
But during Powell's testimony before the Senate yesterday, he admitted that the Fed was looking "very carefully" into the digital dollar question.
He also told the House that the Fed plans to announce more digital dollar developments later this year.
"This is going to be the year in which we engage with the public pretty actively," he said, "including some public events which I'm not going to announce today—but there are things that we're working on."