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Talk that the Federal Reserve should develop a “digital dollar’ is everywhere, but a top U.S. central banker on Monday signaled he isn’t on board.
The Fed’s top overseer of the banking system — Fed Vice Chairman Randal Quarles — said Monday that he he doesn’t see the benefits for a digital dollar and that the new product would “pose considerable risks” to the financial system.
Quarles made his skepticism plain at the start of his speech to Utah bankers saying that Americans tend to fall in love with fads like “parachute pants” in the 1980s.
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‘It seems unlikely that the dollar’s status as a global reserve currency, or the dollar’s role as the dominant currency in international financial transactions, will be threatened by a foreign central bank digital currency.’
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More seriously, Quarles said that the proposal would transform the Fed into “a retail bank for the general public,” that could transform the banking system.
“An arrangement where the Fed replaces commercial banks as the dominant provider of money to the general public could constrict the availability of credit, fundamentally alter the economy, and expose the public to a host of unanticipated, and undesirable consequences,” Quarles said.
Some progressive Democrats back the idea of a digital dollar because it would give Americans better access to the financial system. They note that many Black Americans are “unbanked” and have faced racism from banks located in their communities.
Quarles said that financial inclusion is “a notable goal” but the answer is to make cheap basic commercial bank accounts more widely available.
The Fed has announced it will publish a working paper on digital currency in the next couple of months.
Other members of Congress seem interested in a digital dollar because they don’t want the dollar to lose its pre-eminent status to China, which is making strides to develop a digital yuan.
Quarles said this fear is overwrought.
“It seems unlikely that the dollar’s status as a global reserve currency, or the dollar’s role as the dominant currency in international financial transactions, will be threatened by a foreign central bank digital currency,” he said.
The dollar’s
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role in the global economy rests on a number of foundations including deep financial markets and the rule of law, he said.
Quarles said that he didn’t think the Fed could move forward with a digital currency without legislation from Congress.
Quarles said he wasn’t opposed to the creation of “stablecoins” based on the dollar, but opposed creation of any cryptoasset to compete with bitcoin.
“Bitcoin and its ilk will almost certainly remain a risky and speculative investment rather than a revolutionary means of payment, and they are therefore highly unlikely to affect the role of the U.S. dollar or require a response with a central bank digital currency,” Quarles said.
