Fed Chair Powell Urges Thorough Vetting Of Central Bank Digital Currencies

Federal Reserve Board Chair Jerome Powell sounded a cautionary note on Monday (Oct. 19) on the bank’s potential rollout of a digital currency.

Powell warned of potential downsides to the launch of a digital currency that need to be considered, arguing that the first priority should be to “get it right than to be the first,” Reuters reported.

The Fed chief made his comments as part of a panel discussion on digital currencies hosted by the International Monetary Fund (IMF). It comes on the heels of an IMF report that raises concerns about growing momentum toward central bank-issued digital currencies (CBDCs).

Roughly 80 percent of central banks in 66 countries, including 21 advanced nations, are exploring the issuance of digital currencies, while 40 percent have become pilot programs or experiments, including China, which just completed a major trial run, the IMF report noted.

“Digital money adoption across borders also entails risks and policy challenges,” the IMF report notes, adding that it could “raise pressures for currency substitution and worsen vulnerabilities from currency mismatches.”

For his part, Powell said it is important to look at not only the “potential benefits of a CBDC, but also the potential risks, and also recognize the important trade-offs that have to be thought through carefully,” according to the news service.

The Fed chief, noting that the U.S. central bank has yet to decide whether to plunge ahead, said that issues need to be vetted, include protecting any new digital currency from cyberattacks, fraud and high-tech counterfeiters. That is in addition to examining how CBDCs would impact the stability of the financial system and monetary policy, and concerns that digital currencies could also help shield nefarious activities.

The Fed is currently conducting research into digital currencies on its own, as well as with other central banks and the Bank for International Settlements (BIS), Powell said.