Randal K. Quarles, the Federal Reserve’s vice president of oversight, hinted Monday that the global rush to research and development of central bank digital currencies – often promoted called CBDC – reminded him of another four letter acronym. Fear of missing out, or, as it is better known, FOMO.
Mr. Quarles warned that the country had a habit of falling victim to “the mass suspension of our critical thinking and the occasional fad or fad, illusion”. He sees the parachute pants of the 1980s as a parallel to the current currency craze, noting that sometimes fads are just silly.
“But the consequences could also be more severe,” Mr. Quarles said, speaking from prepared remarks. “Which brings us to my topic today: central bank digital currencies.”
Quarles’ extreme skepticism about the need – and wisdom – of a possible digital version of the dollar made it clear that while Jerome H. Powell, the Fed chair, stated in May that the central bank would study the possibility of issuing such a currency, that effort has not enjoyed the unanimous enthusiasm of its peers. The Fed is expected to release a report on the potential of a digital currency this summer.
Mr. Quarles said he didn’t want to compromise the process, but he thought there was a “high standard” for central bank-issued digital currency.
Currently, the Fed issues physical dollars and digital banking reserves directly, but the money you spend when you swipe your credit card or make a Venmo transaction goes back to the private banking sector. A digital currency would be like an electronic version of physical cash, in that it would go straight back to the Fed. Advocates say it can improve financial inclusion and cross-border payments while preserving the dollar’s position as a leading currency. Opponents, including banks, warn that it could be a destabilizing development and not deliver any benefits that the private sector cannot achieve on its own.
His comments come as other central banks, and especially China, are starting to discuss or establish their own digital currencies. That has increased interest in a version of the Fed, as lawmakers and financial policy experts worry that the US could fall behind.
Mr Quarles said he would “have to believe” that the use case outweighs the risks. He said it “seems unlikely” that the dollar’s position as the dominant global currency would be threatened by a foreign central bank digital currency, given its strength. Its reputation is based on trade links, extensive financial markets, the rule of law in the United States, and trustworthiness. monetary policy from the Fed itself.
“None of this is likely to be threatened by foreign currency, and certainly not because that currency is CBDC,” Mr. Quarles said.
Quarles also dismissed the idea, suggested by some of his colleagues that the Fed should be worried about the advent of stablecoins, digital currencies that derive their value from a bundle of commodities or the underlying currency. .
“In my opinion, we don’t need to be afraid of stablecoins,” said Mr. Quarles. He argued that the Fed has a history of fostering private-sector innovation and that “a global network of stablecoins denominated in US dollars could incentivize the use of the dollar by making cross-border payments faster. and cheaper, and it is likely to be deployed much faster and with fewer downsides” than a central bank version.
That view is in stark contrast to the concerns some of his colleagues have expressed about stablecoins, which caught their attention after Facebook announced that it might attempt to introduce one through Facebook. through an original project called Libra.
“If widely adopted, stablecoins can serve as the foundation of an alternative payment system oriented around new forms of private money,” Fed governor Lael Brainard said in a statement. recent speeches. There is a risk that the widespread use of private funds to pay consumers could fragment parts of the US payments system in ways that create burdens and increase costs, she added. fees for households and businesses”.