The Chairman of the US Federal Reserve, Jerome Powell, was testifying before the Senate Banking Committee today. While typically targeting the Fed’s dual mandate of pursuing full employment and low inflation, the hearing provides an opportunity for the Members to query the Chair on other issues. Notably, Powell, responding to a question from Ohio Senator Bernie Moreno, stated he would never pursue a Central Bank Digital Currency (CBDC). Powell has stated in the past that the Fed would only issue a digital dollar if compelled by Congress. His answer today reflects the change in government.
A digital dollar, issued by the federal government, has been under discussion for several years. Other jurisdictions are investigating a CBDC including the EU and the Bank of England. China is already testing a digital yuan. Yet, the concept of a digital dollar has raised profound privacy concerns.
If the central bank enabled a retail CBDC, it could potentially monitor all spending and transfers from anyone using the currency. While, promises and rules could be instituted to guard against this type of government abuse, the past is precedent and there could be a time where the lure of information is just too strong.
Nicholas Anthony, an Analyst at the Cato Institute, who has written extensively on digital assets including CBDCs, shared his opinion on Chair Powell’s declaration.
“For far too long, the Federal Reserve has maintained a legal grey area around the possibility of a U.S. central bank digital currency, or CBDC. Federal Reserve Chair Jerome Powell’s commitment to never issue a CBDC is a welcome change of pace. CBDCs present risks to financial freedom, privacy, and markets. More central banks should follow Chair Powell’s lead.”
Republicans are poised to forward legislation that would ban retail CBDCs, in favor of stablecoins issued by firms and banks providing a digital dollar. These firms will be subject to stringent regulation and a stablecoin bill is already in the works and should garner bipartisan support.
