Fed’s Powell says he is undecided on central bank digital currency

Powell sharpens his criticism of cryptocurrencies like bitcoin as a common means of payment

Federal Reserve Board Chairman Jerome Powell says bitcoin and other cryptocurrencies have 'completely failed' to become a common means of payment. Win McNamee / Getty Images / AFP

Federal Reserve Chairman Jerome Powell has not made up his mind on the pros and cons of a central bank digital currency, but would want authorisation from Congress before taking action to create one.

“I am legitimately undecided on whether the benefits outweigh the costs or vice versa,” Mr Powell said on Thursday during a hearing before the Senate Banking Committee.

If the Fed were to issue its own digital currency, broadly known by the acronym CBDC, “we would want very broad support in society and in Congress and ideally that would take the form of authorising legislation as opposed to a very careful reading of ambiguous law,” he said.

The remark from Mr Powell, who also said bitcoin and other cryptocurrencies have “completely failed” to become a common means of payment, was intended to clarify comments from a day earlier that some observers read as something of an endorsement of launching a Fed-backed CBDC, which is currently under study.

Mr Powell, in a related testimony on Wednesday to the House Financial Services Committee, said one of the stronger arguments for the Fed to set up a digital currency is that it could undercut the need for private alternatives such as cryptocurrencies and stablecoins.

But, in reply to a question from Senator Patrick Toomey of Pennsylvania on whether that signalled a change in his tone regarding the development of a Fed CBDC, he said he was merely answering a lawmaker’s question about whether a Fed CBDC would be a more viable alternative than having multiple cryptocurrencies or stablecoins emerge in the payments system.

Mr Powell’s remarks on the matter reflect the unease and ambiguity among Fed officials about developing a digital version of the dollar, even as a number of other central banks are pressing ahead with their own CBDCs.

A number of Fed officials recently have openly questioned the need for one, and Mr Powell has repeatedly said the Fed is not eager to be first with a CBDC but to get it right, if it goes down that road at all.

Moreover, Mr Powell in Thursday’s testimony sharpened his criticism of cryptocurrencies like bitcoin as a common payment means, while saying stablecoins, which attempt to peg their value to the dollar, pose separate regulatory challenges.

“With cryptocurrencies, it’s not that they didn’t aspire to be a payment mechanism, it’s that they have completely failed to become one except for people who desire anonymity, of course, for whatever reason,” he told Senator Cynthia Lummis of Wyoming.

“Really the question is stablecoins, and my point with stablecoins is they’re like money funds, they’re like bank deposits, and they’re growing incredibly fast but without appropriate regulation,” Mr Powell said. “And if we’re going to have something that looks just like a money-market fund or bank deposit ... we really ought to have appropriate regulation and today we don’t.”

Fed officials will be broadly examining the digital payments universe in a discussion paper that Mr Powell said could be released in early September. Mr Powell described that to House lawmakers as a key step to accelerate the Fed’s efforts to determine if it should issue a CBDC.