Jerome Powell says a CBDC won’t happen anytime soon

Federal Reserve Chairman Jerome Powell spoke before the House Financial Services Committee on Wednesday. Win McNamee—Getty Images

President Joe Biden issued an executive order last year calling for “the highest urgency on research and development efforts” for a U.S. central bank digital currency, but in a hearing Wednesday, Federal Reserve Chairman Jerome Powell said that could still take years.

Speaking before the House Financial Services Committee, Powell said the Fed and the newly formed Treasury Department interagency task force have not made a decision on whether a CBDC, or digital dollar, is something the financial system and American citizens want or need.

“We are not at the stage of making any real decisions,” he said. “What we are doing is experimenting in the form of early stage experimentation. How would this work? Does it work? What is the best technology? What is the most effective?”

Globally, 11 countries, including China, have implemented their own CBDCs, and 114 countries are considering their own, according to data from The Atlantic Council, a US-based think tank.

While the creation of any CBDC intended for the wider public would require authorization from Congress, Powell said a “wholesale” digital currency intended solely for use between banks and the Fed would not require approval.

The Fed chief contrasted the timeline for creating a CBDC with the launch of FedNow, a central bank-developed service that will facilitate instant payments between banks and their customers, which is set to be released by the end of the year.

“We will have real-time payments in this country very, very soon,” Powell said.

But stablecoins and a digital dollar would serve a different purpose than the FedNow service — and still a different purpose than other cryptocurrencies that aren’t backed by liquid reserves, which Powell said he “never understood the valuation of.”

While FedNow is intended for instant payments between traditional financial institutions using the traditional dollar, a CBDC would itself be legal tender.

Powell added that stablecoins partly draw on the credibility of the US dollar, and that we do not know for sure what is in the reserves of dollar-pegged stablecoins because no regulations address them.

In a hearing before the Senate Banking, Housing and Urban Affairs Committee on Tuesday, Powell warned of the “turmoil” plaguing the crypto industry and called for regulations for crypto products that mirror those in traditional finance.

On Wednesday, Powell reiterated his support for a broad regulatory framework for digital assets, saying clear regulations would improve transparency when it comes to businesses and Americans dealing with cryptocurrency.