Federal Reserve Has Assessed the Possibility of a Central Bank Digital Currency

Jerome Powell, chairman of the Federal Reserve, responded to an inquiry by two congressmen who urged the Fed to consider the prospect of a central bank digital currency (CBDC). As per Ledger Insight, chairman Powell’s response confirmed the Fed has assessed the possibility and continue to research the implications from a cost-benefit perspective, November 21, 2019.

Fed Taking Retail Payments Seriously

Between the imminent launch of FedNow, which is scheduled for 2022, and the possibility of a United States CBDC, the Federal Reserve is evidently taking the spur of innovation in the payments seriously.

Just a month ago, the IMF warned finance ministers and central bankers from the world’s largest countries that payment narratives are rapidly moving away from their reach. The newfound interest governments have taken to stablecoins, thanks to Libra, is at the heart of the decision to research a digital currency. Even Bank of Japan’s Kuroda confirmed they were studying the effect of a sovereign digital currency.

Despite these warnings, some people still don’t see the utility of digital currency; Alan Greenspan is the most notable economist who has opposed digital currencies. However, his argument was riddled with fundamental flaws and the economics of the free world has drastically changed since his reign as Fed chairman ended.

European regulators don’t believe the United States needs to aggressively pursue a digital currency given the efficiency of their current payment architecture relative to Europe. ECB official Dirk Bullman used the example of FedNow to highlight the United States payment innovation without realizing FedNow is nowhere near ready to be rolled out.

Playing Catch Up is Dangerous to the Nation-States

If you look at the current state of stablecoins, they boast a market cap of just over $5 billion dollars and are widely used by crypto investors and transactors.

But the broader market, with Bitcoin et al, is also important to the payment narrative that is taking shape. Being able to access a stable value in the form of the dollar is a great benefit, but the ability to hold your own wealth in a self-custodial manner with no scope for censorship is being increasingly viewed as important.

The longer governments take to act, the more awareness will flow towards decentralization and the need for non-autocratic payment methods. If this narrative is allowed to play out, governments may very well lose a large chunk of the regulated market to more individual friendly networks.