Jerome Powell, head of the US Federal Reserve, said state-backed digital currencies and official Central Bank Digital Currencies (CBDCs) can function alongside fiat money in the coming years, as per a report on business outlet Bloomberg on Thursday.
Powell made the comments in a prerecorded video to a payments conference in Basel, Switzerland, amidst a bigger institutional push for cryptocurrencies and Bitcoin in recent times.
CBDCs are theorized as fiat-backed stablecoins that are directly controlled and issued by the state. All transactions would be viewable on a blockchain and these are likely to serve as a faster, more traceable method of settling funds compared to cash. However, may not be as accessible or inclusive to use as Bitcoin or other ‘public’ cryptocurrencies.
And for Powell, these play a role in the world’s financial markets next to cash. “A recent report from the Bank for International Settlements and a group of seven central banks, which includes the Fed, assessed the feasibility of CBDCs in helping central banks deliver their public policy objectives,” he said, adding the report concluded that a CBDC would need to coexist with cash and “other types” of money in a flexible and innovative payment system.
Powell noted the ongoing Covid crisis further drove the need for a reliable, cross-border currency system, one addressed the “limitations” of current payment systems.
“And as this conference amply demonstrates, despite the challenges of this last year, we still have been able to make important progress.”
The conference was attended by important members of the Bank of International Settlements and other financial regulators.
How the pandemic helped digital currencies
Digital currencies saw bigger popularity among bankers and global financiers last year amidst the crisis. Some of the major concerns, regarding cash and currency monetary methods, were the lack of both local and international banking during times when it was needed the most.
Christine Lagarde, chief of the European Central Bank, said in December last year that the pandemic had ‘hastened’ the shift to a digital currency system. She noted a global surge was observed in digital payment methods, one that was deemed safer than cash (as the latter relies on contact).
The thoughts were echoed by other institutions like the Bank of Japan, the Bank of England, and even South Korean authorities, who all addressed and considered their own CBDC rollout plans for the near future.
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