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flag ★ Fed won't issue a digital dollar anytime soon

Forex Analysis:::2022-09-28T09:15:42

Fed won't issue a digital dollar anytime soon

Fed won't issue a digital dollar anytime soon

Jerome Powell, Chairman of the US Federal Reserve, said that the central bank is not going to issue a digital dollar anytime soon.

"We do not see ourselves making that decision for some time," Powell said on Tuesday, speaking remotely about the role of central banks in digital markets to global financial leaders and cryptocurrency regulatory experts attending a conference in Paris.

Powell indicated that the central bank would instead work in collaboration with Congress and the executive branch to assess policy and technology issues. This includes a multi-year period during which the Fed will focus on "building public confidence in our analysis and ultimate conclusions, which we certainly haven't reached yet."

The central bank chairman also said the Fed would need White House and Congress approval to proceed with issuing a digital dollar.

Regarding the criteria required for a central bank to create a CBDC, Powell identified four key characteristics: intermediation, privacy protection, identity verification, and interoperability.

"We would be looking to balance privacy protection with identity verification, which has to be done in today's traditional banking system as well." Powell said.

According to him, the Fed's sharp interest rate hike this year contributed to the collapse of some stablecoins and a significant drop in the value of cryptocurrencies, which led to the onset of a "crypto winter" and revealed "significant structural issues" that exist in decentralized finance (DeFi).

Moreover, he said that the ongoing decline in the cryptocurrency market gave regulators more time to fully assess the capabilities of the digital dollar, identify weaknesses and adopt appropriate rules, noting that the crypto winter did not have a significant impact on financial stability and the banking system as a whole.

"This demonstrates the weaknesses and work that needs to be done," Powell said, referring to problems with the structure and transparency of DeFi. "Crypto winter gives us a little bit of time. That situation will not persist indefinitely."

Issues such as the need to regulate unattended wallets or algorithms have been identified as examples of issues requiring more work. Powell emphasized the need to develop appropriate regulations in the future as DeFi gains popularity and attracts more retail investors.

Analyst InstaForex
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