Washington: The dollar’s international standing could be impacted by the swift evolution in global finance, especially in cryptocurrencies, despite the US currency’s reign as a store of value, Federal Reserve Chairman Jerome Powell said Friday.
“Looking forward, rapid changes are taking place in the global monetary system that may affect the international role of the dollar in the future,” Powell said in a live-streamed speech at a conference hosted by the Fed. “We will be thinking not just about the current state of the world, but also how the global financial system might evolve over the next 5 to 10 years.”
The Fed said in January that a Central Bank Digital Currency (CBDC) could be a safe, digital payment option to the dollar that allowed faster transactions. But it also cited downside risks to the dollar, such as fragmentation of value, from such a government-run cryptocurrency.
Powell touched on that in his Friday speech.
“Most major economies already have or are in the process of developing instant, 24/7 payments,” the Fed chief said. “Our own FedNow service will be coming online in 2023. And in light of the tremendous growth in crypto-assets and stablecoins, the Federal Reserve is examining whether a … CBDC would improve on an already safe and efficient domestic payments system.”
Even so, there were risks to the dollar’s international standing that could not be ignored, he said. “I would like to stress the importance of the dollar to the US and global economies and financial markets. It is critical that we understand the channels, connections, and effects of the role of the dollar.”
The global plan for CBDCs gained momentum last year as central banks around the world began exploring ways to not just avert negative impact on their paper currencies from existing crypto assets like Bitcoin, but also profit from their own digital money.
Fed Vice Chair Lael Brainard, however, told a May hearing held by the US House of Representatives that the central bank would not proceed with a CBDC unless Congress approved it. Brainard’s stance was in line with the Fed’s decision since January to leave the matter in the hands of US lawmakers, as it released a months-long study on the benefits of having a CBDC, without saying whether it wanted such a payment mode.