Federal Reserve Chairman Jerome Powell said the jury is still out about the costs and benefits of the central bank developing a digital currency, but he is keeping an open mind.
During a Thursday hearing before the Senate Banking Committee, top panel Republican Pat Toomey told Powell he is still unsure what problems a central bank digital currency, sometimes referred to as a CBDC, would solve.
Powell said that the Pennsylvania Republican’s question about the utility of a digital currency was an important one and that it is the central bank’s obligation to explore the technology and policy issues over the coming years so that it can make an informed recommendation about whether a digital currency should be developed.
“I’m legitimately undecided on whether the benefits outweigh the cost or vice versa on a CBDC,” Powell said.
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The concept of stablecoins was also touched on during the Senate hearing. Stablecoins, for example, Tether, are a form of cryptocurrency that has their value tied to another asset class such as gold or fiat currency. Stablecoins don’t fluctuate in value wildly, as some cryptocurrencies such as Bitcoin have, because they are asset-backed.
Powell also testified in Congress on Wednesday when he appeared before the House Financial Services Committee. During that hearing, he suggested that stablecoins and cryptocurrencies wouldn’t be needed if the United States were to adopt a central bank digital currency. Toomey invoked his comments and wondered if the reverse was also true — if a digital currency wouldn’t be needed given the use of stablecoins and cryptocurrencies.
Powell said that he was answering a direct question about a particular argument for a CBDC when he made those remarks and clarified that he was saying that circumventing cryptocurrencies and stablecoins would be one of the arguments in favor, although he emphasized that the more direct route would be to regulate stablecoins, which he said is a “very important” task.
Toomey said that he thinks the development of a digital currency by the Federal Reserve would require congressional authorization, and Powell appeared to concur.
The central bank chairman said he thinks the Fed should have “very broad” societal and congressional support should it embark on developing a CBDC and “ideally that would take the form of authorizing legislation” to do so.
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Despite all the remaining questions and uncertainty about how a CBDC would work, Powell told lawmakers that his “mind is open” to the concept and that he doesn’t have a preconceived notion as of now.
