NY Fed’s Williams Says Digital Money May Impact Policy

New York Federal Reserve President John Williams said developing digital currency and payment technology could impact how the Fed works with monetary policy and does its balance sheet, Reuters wrote Wednesday (June 1).

Williams, speaking at a research conference, said digitizing finance could “have implications for markets and for our interactions with counterparties, as well as how we carry out monetary policy,” and that there would be a big question on how central banks would anticipate and adapt.

He said central banks will all have to supply money and liquidity to help bring stability to the economy, so it is important to understand how things like digital assets could change the financial system.

This comes as a wider debate has raged over everything from stablecoins to central bank digital currencies (CBDCs). There have been murmurs of making a digital version of the U.S. dollar, with the Biden administration also looking more into the broader implications of cryptocurrency and digital assets.

The collapse of the UST stablecoin also cast a shadow over the discussion in the past few weeks, leading to renewed vigor in calls for digital asset regulation.

The debate is also going on in other governments. In the U.K., the government has launched a consultation that proposes an insolvency regime for digital currencies, particularly for stablecoins because of the incident with the UST coin.

Read more: UK Government Wants Bank of England to Regulate at-Risk Stablecoins

The regime would put the Bank of England, rather than the Financial Conduct Authority, as the lead authority on managing the collapse of a stablecoin with importance to the financial system.

The FCA will still have the power to regulate and supervise companies in the sector, but the government wants to broaden its definition of a payment system to include arrangements facilitating or controlling the transfer of “digital settlement assets,” to let them regulate important payment systems and services providers.