WASHINGTON–Officials with the Federal Reserve have been increasingly showing signs of a divide when it comes to whether the Fed should issue a digital dollar, or a digital currency that traces straight back to the central bank rather than to the private banking sector.
Remarks by a number of Fed officials show they have yet to align on the issue, even as the Fed’s peers in China, parts of Europe and smaller economies like the Bahamas have created digital currencies or are working toward issuing them, noted the New York Times.
As CUToday.info reported earlier, the Fed plans to release a report on the potential costs and benefits of a central bank digital currency (CBDC) later this year.
As CUToday.info also reported, Philadelphia Federal Reserve Bank President Patrick Harker said he believes it is "inevitable" that central banks will begin issuing digital currencies, while Fed governor Lael Brainard also recently stated she envisions a future in which America’s central bank explores and issues a digital currency.
But not everyone agrees. Fed Governor Christopher Waller stated he doesn’t see the need for such a digital dollar, saying there is little a central bank digital offering could do that the private sector cannot and that the potential benefits of a digital dollar are most likely overstated, while the risks are substantial, the Times reported.
He added that the United States need not worry about the U.S. dollar being supplanted by China’s digital offering.
‘Solution in Search of a Problem’
“I am left with the conclusion that a CBDC remains a solution in search of a problem,” Waller said last week. He also voiced concerns that a central bank currency would give the Fed too much information about private citizens, according to the Times.
In addition, Randal K. Quarles, the Fed’s vice chair for supervision, has also sounded dubious about the need for a central bank digital currency, painting the idea as a “passing fad,” the Times added.
“Supporters of central bank digital currency say it is critical for the United States to stay on top of the technology, even if it is not yet clear” what benefits such currencies will offer in practice,” the Times stated. “Some suggest that a Fed digital dollar could prevent stablecoins — private digital assets backed by a bundle of currencies or other assets — from becoming dominant and creating a big financial stability risk.
‘Vulnerabilities’
“But opponents worry that a central bank digital currency would not offer benefits that the private sector did not or could not provide and that it might introduce cybersecurity vulnerabilities, issues that Mr. Waller raised…” the report added.