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Powell seeks input as the Fed delves deeper into digital currencies

(Bloomberg) – Federal Reserve Chairman Jerome Powell has turned up the volume in the US dollar debate on the digital dollar, announcing that the central bank will publish a research paper and solicit public comment if it comes to one in the future. Reserve to hear a wide range of voices on this important issue before making a decision on whether and how to move forward with a US CBDC, ”he said in a statement Thursday, in which he referred to central bank digital currencies. “To stimulate a broad discussion, the Federal Reserve Board will issue a discussion paper this summer setting out our current thinking on digital payments, with an emphasis on the benefits and risks of CBDC in the US context.” The One Week Announcement Given the high volatility in cryptocurrencies, a Powell-style consensus-building exercise on the subject of a digital US dollar will be launched, which has so far been primarily a technology project based at its regional Boston office. The approach to attracting outside voices has been a hallmark of Powell’s leadership. Powell said he wanted the Fed to play a “leading role” in developing international standards. Central banks around the world – especially the People’s Bank of China – are promoting digital currencies that could give them a head start in developing standards, also because they have actual experience. “It is difficult not to see today’s statement in the context of China and what is happening in the private crypto markets,” said Derek Tang, economist at LH Meyer / Monetary Policy Analytics in Washington. “The Fed is a little complacent and says, ‘We are the reserve currency. ‘That is changing now. “Tang said China’s digital currency aims to have more control over the domestic financial system, but also to project soft power into the global trading system with digital yuan payments. “These efforts may have accelerated faster than the US expected,” he said. A key issue for Powell and other Fed officials is how this technology fits into the current US banking system, which already offers electronic payments in a variety of countries. Criticism of the current system is that it locks out many low-income people and charges them charged for basic services that people with high bank accounts do not suffer from. Individual digital currency accounts could serve as a competitive form. Still, the banking system offers a high level of protection for depositors, including insurance, which a less regulated system may not offer. Said Aaron Klein, a senior official at the Brookings Institution in Washington. Long check cashing times can lead people in under-banked communities to use payday lenders, who charge high fees for cash advances. “The answer is to fix the Fed system and move society to a better payment system,” he said. That may not mean digital currency, but rather FedNow, a separate project that the Fed is building and that will compete with banks in the same market. Klein said US central bankers want to clarify what problem they are addressing when valuing a digital dollar. “Our primary focus is on whether and how a CBDC can improve an already safe, effective, dynamic, and efficient problem in the US domestic payment system,” said Powell. “We believe it is important that any potential CBDC be used as a complement to, rather than a substitute for, cash and current digital forms of the private sector dollar such as deposits with commercial banks.” Cryptocurrencies were not a convenient way to make payments, partly because of their fluctuations in value. “He also said that stable coins, or digital currencies pegged to the dollar, are being scrutinized by regulators. He hoped the paper would be a thought-provoking process. “Regardless of the conclusion we ultimately reach, we expect to play a leading role in developing international standards for CBDCs, in actively working with central banks in other jurisdictions, and regulators and regulators here in the United States during this process . “(Updates with comments from analysts Tang and Klein in paragraphs five and ninth.) More stories like this are available on bloomberg.com. Sign up now to stay up to date with the most trusted business news source. © 2021 Bloomberg LP

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