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Stable cryptocurrencies could become systemic overnight, said U.S. Federal Reserve Chairman Jerome Powell, and that’s why the Fed is determined to get its own central bank digital currency.
CBDCs are the banking industry’s answer to stable cryptocurrencies. Although they are often hosted on the blockchain, they share little philosophical parity with their decentralized counterparts. CBDCs will be supervised by the banks that issue them and will be governed by the laws of their respective jurisdictions.
Speaking in an interview with Yahoo Finance, Powell said advancements in technology have allowed private entities to create their own money – and history has shown it to be something to be avoided:
“Technology has made this possible and private sector actors can effectively create the equivalent of digital money. We know that in the past, with private sector money, the public sometimes think of it as money and then at some point they find out that it is not money. It is a very bad thing that we must avoid. “
Powell can imagine a scenario where stablecoins are suddenly relevant to a large enough number of people to become “systemically important” overnight. He said the Fed still didn’t know how it might react to such an event and admitted it wasn’t even close to understanding the risks:
“[Stablecoins] could become systemic overnight and we don’t start to focus on potential risks, on how to manage those risks – and the public will expect us to, and have every right to s ‘wait there […] This is a very high priority. “
No matter how high a priority the launch of a CBDC may be, the Fed will not fall into the trap of trying to be first. Russia, China, Sweden, Australia and the European Central Bank have all taken steps to launch a CBDC (some are more advanced than others), but according to Powell, the United States will always have the advantage. first come due to dollar status. as world reserve currency:
“Since we are the world’s reserve currency, we actually think we need to do things right and we don’t feel the urge or need to be first. In fact, it means that we already have a first-come advantage because we are the reserve currency. “
Powell’s laid-back approach to the prospect of an emerging “CBDC gap” between the world’s superpowers is not shared by everyone. In October, a senior Japanese finance minister warned that China’s digital currency could eclipse the fiat currency of the world’s nations if the digital yuan got the first-mover advantage.
The chairman of the China Finance Association rejected the idea, adding that the digital yuan was not like Libra and had no intention of replacing international currencies.
Any eventual “Fedcoin” is still years away, according to Powell, who is determined to do it right, rather than quickly – even if that means losing ground to private sector money in the meantime.
“We are determined to do this right rather than quickly, and it will take time. […] Measured in years rather than months. “
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