Chairman of the US Federal Reserve (the Fed), Jerome Powell, proposed that the United States is in no rush to begin a central bank digital currency (CDBC), suggesting that the dollar’s status as the de facto world reserve currency will give the nation with “first-mover advantage” – no matter what strategies other nations roll out on digital currencies. A researcher seems to agree with this approach.
In a Yahoo Finance webinar, Powell stated,
“Since we are the world’s reserve currency, we think we need to get [CBDC] issuance right. We don’t feel an urge or a need to be first.”
He also asserted that there were “benefits” as well as “unresolved questions and potential costs” when it comes to CBDCs, and said that the Fed planned to launch a program of “outreach” to the financial industry to assess if stakeholders really “needed” a digital dollar and learn “how it would help” the industry.
He emphasized in his previous claims that “We’re determined to do this right, rather than quickly, and it will take some time – measured in years, rather than months.”
Powell seemed to hint that the rising reputation of crypto and other digital assets could force the Fed’s hand, admitting,
“Since [a CBDC launch] is possible and the private sector is already kind of doing it, I think this is something we need to take very, very seriously.”
Powell’s remarks seem to fly in the face of outcomes from economists at the European Central Bank (ECB) late last year that advised countries that lag in the race to issue a CBDC could be required to pay a price in the medium-term, and could even lose control of their monetary strategy as a result of neighboring or rival states winning over them to CBDC issuance.
The economists cautioned that early CBDC rollouts would present a “significant first-mover advantage to its issuer.”
Meantime, in a recent paper, research fellow Martin Chorzempa from Peterson Institute for International Economics, wrote,
“Emerging markets like China are more likely to perceive benefits worth the risk of CBDC issuance, while high-income economies like the United States are taking a more gradual approach that minimizes potential disruption.”
China is already ahead in the implementation phase of its digital yuan project.
“The Fed most likely has concluded that the risk of piloting or issuing a CBDC in a few years will be significantly lower due to the ability to learn from accumulated experience in other countries. Only then will experts and the general public know to what extent CBDCs will advance financial inclusion, how to include security features that can handle the risk of cyber threats, whether disintermediation or a flight out of banks in financial crises can be prevented, the cost trade-offs, and other considerations,” Chorzempa stated, continuing that one shortcoming of this strategy is that the Fed will not be able to gain some of the effective “learning by doing” knowledge that China is gaining now.
Nevertheless, the research fellow believed that the Fed is likely delaying its digital dollar rollout intentionally as part of a carefully planned strategy, continuing,
“This course of action does entail the risk that the [Chinese central bank] will gain a first-mover advantage, but the analysis here suggests that the pace of technology and market development will make any first-mover advantage difficult to sustain in the short term, due to the absence of an ecosystem that would facilitate rapid development of network effects.”
Similar stories that you may have missed:
No Comment