Federal Reserve Chair Jerome Powell Says U.S. Government Looking into Own Digital Currency

Federal Reserve Chair Jerome Powell said Thursday that the government is exploring the possibility of issuing a new type of digital currency amid the rise of cryptocurrencies.

Powell said that the Federal Reserve would be publishing a discussion paper sometime during the summer of 2021 that would focus on the possible creation of a central digital bank currency (CDBC). He said that the move was "the beginning of what will be a thoughtful and deliberative process."

"Today we are in the midst of a technological revolution that is fundamentally changing our world, reshaping how we communicate, access information and purchase goods and services," Powell said in a video message. "As the central bank of the United States, the Federal Reserve is charged with promoting monetary and financial stability and the safety and efficiency of the payment system."

"In pursuit of these core functions we have been carefully monitoring and adapting to the technological innovations now transforming the world of payments, finance and banking," he added. "The Federal Reserve has been exploring the potential benefits and risks of CDBCs from a variety of angles, including through technological research and experimentation. Our key focus is on whether and how a CDBC can improve on an already safe, effective, dynamic and efficient U.S. domestic payment system."

The graphic below, provided by Statista, illustrates current government-issued digital currency plans around the world.

CDBCs share some of the characteristics of cryptocurrencies but are considered to be more stable and distinct due to some key differences. Aside from any technical differences, CDBCs are tied to the value of a specific currency and controlled by a central authority, unlike cryptocurrencies.

Powell noted that cryptocurrencies were not current considered "a convenient way to make payments" due to several factors including "swings in their value." He said that so-called "stablecoins," which may be tied to the value of a currency but lack the centralized control of CDBCs, still "carry potential risks" to consumers and financial systems and would require "appropriate regulatory and oversight framework" if they are more widely adopted.

A potential U.S.-issued CDBC would serve as a compliment to cash and traditional digital methods of moving dollars, rather than being a replacement. Powell said that designing a CDBC would "require careful input and analysis," including public comment, noting that the process could raise policy, consumer protection, legal and privacy concerns. The planned discussion paper will address some of those concerns.

Regardless of whether the U.S. creates a CDBC of its own, Powell expects the Federal Reserve to be taking "a leading role in developing international standards for CDBCs." Powell's announcement came after China began testing its own government-issued CDBC, tied to the Yuan, with hopes to have it in place by the time of the 2022 Winter Olympics in Beijing. Some experts believe that a U.S. CDBC is likely to take considerably longer.

"It's going to take some time to do it right," David Treat, leader of the blockchain practice for Accenture, told CNBC. "We're talking about a four- or five-year journey to real availability and usage and a lot of learning that has to happen between now and then to make sure how it's implemented fits with each country's social values and laws."

Newsweek reached out to the Federal Reserve Board of Governors for additional comment.

Update 5/21/21: This article was updated to include an infographic.