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During testimony before Congress this week, Federal Reserve Chair Jerome Powell stated that his “mind is open” about the adoption of a “digital dollar.”
Across the globe, central bankers are considering central bank digital currencies (CBDCs) as an alternative to other digital assets — such as cryptocurrencies, which are virtual coins kept anonymous and protected from counterfeiting via encryption, and stablecoins, which are cryptocurrencies that attempt to peg themselves to another asset such as gold or the dollar.
Nations such as China, Ecuador, Thailand, and Saudi Arabia have discouraged the use of cryptocurrency while creating their own CBDCs. Although the Fed planned to issue a report about a potential “digital dollar” this month, Powell said that the central bank’s findings will be delayed until early September.
Most CBDCs mimic cryptocurrencies — including Bitcoin — through their use of blockchain technology, with the added benefits of stability and widespread acceptance. However, users of CBDCs would potentially lose the benefits of the decentralization and anonymity offered by conventional cryptocurrencies.
Lawmakers — including Sen. Pat Toomey (R-PA) — questioned Powell on his current attitudes toward the digital dollar.
“During your testimony yesterday, I sensed … what might be a change in your tone about the virtues of a central bank digital currency being issued by the Fed,” said Toomey. “One of the things you said yesterday is that one of the stronger arguments in favor of a CBDC is that ‘you wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital U.S. currency.”
“Of course, isn’t the reverse also true?” asked Toomey. “If you have stablecoins, cryptocurrency is in use, then maybe there’s no need for a central bank digital currency… It is still not clear to me what a central bank digital currency would solve, and I wonder if you think there are problems that only a central bank digital currency can solve.”
Powell responded that he is “legitimately undecided” if the “benefits outweigh the costs” of a CBDC: “I would agree that the more direct route would be to appropriately regulate stablecoins, which we don’t do right now.”
“We would want very broad support in society and in Congress,” continued Powell of a potential CBDC. “It’s a very, very important initiative, and I do think we should ideally get authorization.”
“I think our obligation is to explore both the technology and the policy issues over the next couple of years,” he continued. “That’s what we’re going to do so that we’re in a position to make an informed recommendation. Again, my mind is open on this, and I honestly don’t have a preconceived answer to these questions.”
At the time of this article’s writing, Bitcoin has observed a two-month bear run. It is currently priced at roughly $31,500 apiece.