Cryptocurrencies not convenient payment method due to price swings, says Fed's Powell
(Kitco News) Wild price swings in the crypto space make it an inconvenient payment method, said Federal Reserve Chair Jerome Powell in an unexpected video message. Powell also revealed that the central bank would publish a research paper on digital currency this summer and open the topic up for public debate.
"Recently, the rise of distributed ledger technology, which offers a new approach to recording ownership of assets, has allowed for the creation of a range of new financial products and services—including cryptocurrencies," Powell said Thursday. "To date, cryptocurrencies have not served as a convenient way to make payments, given, among other factors, their swings in value."
As the financial sector embraces innovation, the central bank needs to continue to ensure the payment system's financial stability, safety, and efficiency, Powell stated.
"Today, we are in the midst of a technological revolution that is fundamentally changing our world: reshaping how we communicate, access information, and purchase goods and services," he said. "We have been carefully monitoring and adapting to the technological innovations now transforming the world of payments, finance, and banking."
Powell also clarified the timeline around the Fed's own central bank digital currency (CBDC), stating that it will be releasing a research paper that will be open to public feedback this summer.
"To help stimulate broad conversation, the Federal Reserve Board will issue a discussion paper this summer outlining our current thinking on digital payments, with a particular focus on the benefits and risks associated with CBDC in the U.S. context," he said. "As part of this process, we will ask for public comment on issues related to payments, financial inclusion, data privacy, and information security."
Powell highlighted that any central bank digital currency that the Fed would consider using in the future would be designed to complement the U.S. dollar, not be its substitute.
"The Fed has been working on exploring its own CBDC for several years now," he said. "We think it is important that any potential CBDC could serve as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks."
Powell also commented on the development of stablecoins that are tied to the value of the U.S. dollar or some other currency.
"These stablecoins aim to use new technologies in a way that has the potential to enhance payments efficiency, speed up settlement flows, and reduce end-user costs—but they may also carry potential risks to those users and to the broader financial system," he said. "As stablecoins' use increases, so must our attention to the appropriate regulatory and oversight framework. This includes paying attention to private-sector payments innovators who are currently not within the traditional regulatory arrangements applied to banks, investment firms, and other financial intermediaries."