The rumor is that the Fed and MIT will release the results of their Central Bank Digital Currency (CBDC) research sometime in July so this statement by Randal Quarles, the Federal Reserve Vice Chair of Supervision, is likely timed to have an impact.
Quarles argues that a US CBDC would replace banks as the primary source of money with the Federal Reserve and that this would pose significant risks:
“’Federal Reserve CBDC could pose significant and concrete risks,’ Quarles told the Utah Bankers Association Monday, according to his prepared remarks. ‘An arrangement where the Federal Reserve replaces commercial banks as the dominant provider of money to the general public could constrict the availability of credit, fundamentally alter the economy, and expose the public to a host of unanticipated, and undesirable, consequences.’
Central banks around the world are testing digital currencies as a parallel payment system, while private cryptocurrencies grow in popularity.
Chair Jerome Powell said last month that he wants the Fed to play ‘a leading role’ in the development of international standards for digital currency. Central banks elsewhere — most notably the People’s Bank of China — are moving ahead with digital currencies which could give them a head-start in how standards develop. Powell announced last month that the Fed will issue a discussion paper this summer highlighting the risks and benefits of digital payments.
‘Our work is cut out for us as we proceed to rigorously evaluate the case for developing a Federal Reserve CBDC,’ Quarles said. ‘Even if other central banks issue successful CBDCs, we cannot assume that the Federal Reserve should issue a CBDC.’
Separately, the Boston Fed is working on a multi-year project with the Massachusetts Institute of Technology to research the technology that would support a digital payments system.
Quarles said he was skeptical that the dollar’s status as the reserve currency would be threatened by foreign digital currencies and he noted that much of the dollar payment system is already digitized. He added that he wasn’t convinced that a digital dollar would be an effective tool for financial inclusion.”
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group