Cash Can Co-Exist with Cryptocurrency
- U.S. Federal Reserve Chairman Jerome Powell’s comments about central bank digital currencies or CBDCs the closest the Fed has ever come to considering the issuance of its own digital dollar
- A Fed-issued digital dollar likely to have limited impact on cryptocurrencies as the pre-existing alternatives still have their use
In the clearest sign yet that the U.S. Federal Reserve is considering the issuance of its own digital currency, Fed Chairman Jerome Powell said that potential central bank digital currencies must co-exist alongside cash.
Speaking via a pre-recorded video conference to a payments conference in Basel, Switzerland on Thursday, Powell said,
“A recent report from the Bank for International Settlements and a group of seven central banks, which includes the Fed, assessed the feasibility of CBDCs in helping central banks deliver their public policy objectives.”
“Relevant to today’s topic, one of the three key principles highlighted in the report is that a CBDC needs to coexist with cash and other types of money in a flexible and innovative payment system.”
“The Covid crisis has brought into even sharper focus the need to address the limitations of our current arrangements for cross-border payments.”
“And as this conference amply demonstrates, despite the challenges of this last year, we still have been able to make important progress.”
Some cryptocurrency industry participants are growing concerned that should the Fed issue its own central bank digital currency, it will give Bitcoin and possibly other stablecoins, a run for their money.
But thus far the Fed has shown no appetite for issuing its own digital currency, even though China has already taken great strides in issuing its own CBDC and some are warning that the U.S. risks being left behind as more and more central banks consider their own digital currencies.
The impact of a digital dollar is as yet unclear on the rest of the cryptocurrency scene, especially since there are plenty of dollar-based stablecoin alternatives already in operation.
But any effect of a Fed CBDC is likely to be minimal at best. For starters, most cryptocurrency exchanges will be reluctant to accept a Fed dollar stablecoin, especially given the legally ambiguous status of the most commonly accepted stablecoin for derivatives trading, USDT or Tether.