The Federal Reserve: Cryptocurrencies may bring potential risks and will release a discussion paper on issuing CBDC this summer

According to Reuters, Federal Reserve Chairman Jerome Powell said on Thursday that cryptocurrencies, stablecoins and other innovations could pose potential risks to users and the entire financial system.

“We must also pay attention to appropriate regulatory and supervisory frameworks. This includes focusing on private sector payments innovators, which currently fall outside the traditional regulatory perimeter that applies to banks, investment firms and other financial intermediaries,” he said.

Powell said the Fed wants to ensure that any central bank digital currency provides benefits for consumers and businesses, noting that “to date, the volatility of the value of cryptocurrencies has not made them a convenient means of payment, given other factors.”

Powell said that the Fed will release a discussion paper on the issuance of CBDC this summer, which will explore the impact of rapidly developing technologies on digital payments, with a particular focus on the possibility of issuing a U.S. central bank digital currency. The document will complement the Federal Reserve System's ongoing research.

"As the central bank of the United States, the Federal Reserve is charged with promoting monetary and financial stability and the safety and efficiency of the payment systems," he said. "In pursuing these core functions, we have been carefully monitoring and adapting to the technological innovations that are transforming the world of payments, finance, and banking."

The technology also offers new possibilities for central banks, including the Federal Reserve. In particular, it enables the development and issuance of central bank digital currencies, or CBDCs.

Powell also said: "We believe it is important that any potential CBDC serve as a supplement to, rather than a substitute for, cash and current private sector digital dollars, such as deposits at commercial banks. The design of a CBDC will raise monetary policy, financial stability, consumer protection, legal, and privacy considerations, and will require careful thought and analysis, including input from the public and elected officials."

The Boston Fed is currently working with MIT to research technology that could be used for a central bank digital currency and will publish those results in the third quarter. Powell and other Fed officials have said they intend to act to ensure that the benefits outweigh any risks involved.