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Fed officials express skepticism about a U.S. central bank digital currency

Reuters | Jonnelle Marte | Jun 28, 2021

US federal reserve board - Fed officials express skepticism about a U.S. central bank digital currencyJune 28 (Reuters) - Two Federal Reserve officials on Monday expressed strong skepticism about the need for the central bank to issue a digital currency, saying that many dollar transactions are already virtual and some of the potential benefits of an official digital currency may be accomplished through other means.

The remarks, made at two separate events on Monday afternoon, suggest policymakers could face intense discussions as they explore the potential benefits, costs and logistics of creating a central bank digital currency, or CBDC.

Fed Vice Chair for Supervision Randal Quarles said any proposals to create a U.S. CBDC must clear a "high bar," and that he needs to be convinced the potential benefits would outweigh the risks.

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"Before we get carried away with the novelty, I think we need to subject the promises of a CBDC to a careful critical analysis," Quarles said in remarks delivered in person during the annual Utah Bankers Association Convention.

The Fed official said the U.S. dollar is already "highly digitized" and expressed skepticism that a CBDC would help to improve financial inclusion or lower financial costs. Some of those issues may be better addressed with other solutions, such as improving access to low-cost bank accounts, Quarles said.

Richmond Fed Bank President Thomas Barkin expressed similar skepticism when speaking to the Rotary Club of Atlanta. "We already have a digital currency in this country, it’s called the dollar," he said.

Barkin said many transactions are already completed virtually through services such as Venmo and online bill pay. "We ought to have a sense of what are we trying to accomplish when we do it," Barkin said.

The policymakers' remarks come as the U.S. central bank is ramping up its efforts to explore the potential launch of a digital currency.

See:  Canadian researchers develop CBDC digital currency proposal for Bank of Canada

The Fed will release a discussion paper this summer about the benefits and costs of a CBDC and the Boston regional arm of the Fed is doing research with the Massachusetts Institute of Technology on the technology that could be used for a digital currency. That paper, along with open-source code, will be released in the third quarter.

Fed Chair Jerome Powell has made it clear that the central bank would not be able to launch a digital currency without congressional action, a point Quarles reiterated on Monday.

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