Fed governor says central banks should carefully consider issuing digital currencies

Rage Comment : Many senior officials of the Federal Reserve have repeatedly stated that blockchain technology is very important. However, some directors such as Jerome Powell have expressed concerns about the central bank's issuance of blockchain-based digital currency. They pointed out that it may cause privacy and security issues, cause larger-scale cyber attacks around the world, and hit private sector payment innovation. Therefore, when issuing digital currency, the central bank should first consider the payment system and policy issues and balance the development of the private sector.

Translation: Annie_Xu

Central bank-issued digital currencies could hamper private sector payments innovation, a senior Federal Reserve official said today.

A series of roundtables on blockchain and future financial markets were held at Yale Law School, with Federal Reserve Governor Jerome Powell delivering a keynote speech criticizing the concept of central bank-issued digital currencies.

Powell’s deep dive into blockchain technology echoes past statements and findings from the U.S. central bank, raising the subject of so-called CBDCs (central bank-issued digital currencies). Many central banks around the world, notably the Bank of England, have been pursuing potential applications in this area over the past year and a half. Central banks in China, Sweden and Singapore, among others, have also investigated this use case.

During the conversation, Powell raised technical and privacy issues that could hinder such a project, arguing that such a system "would be a global target for cyberattacks, cyber counterfeiting, and cyber theft."

Moreover, these activities could exclude the private sector from new payment instruments.

Powell said:

“In fact, I think private sector systems are more likely to offer new capabilities to the public through faster payment systems than central banks because they need to compete for retail business customers. A central bank-issued digital currency would compete with these and other innovative products from the private sector, potentially hindering long-term innovation.”

He said the central bank might want to consider private channels.

He said: "Any central bank actively considering issuing a digital currency needs to think carefully about the payment system and other policy issues, which appear large, and the potential social benefits are large. In my view, they should also consider whether the private sector can largely meet the same needs."

The move comes months after Federal Reserve Board member Lael Brainard discussed the central bank’s blockchain research. Fed Chair Janet Yellen has also spoken about the technology twice since last fall, calling it an “important technology” at a January conference.