Jerome Powell, Chair of the Board of Governors of the Federal Reserve System, testified before the House of Representatives’ Committee on Financial Services on Tuesday. The hearing, entitled “Monetary Policy and the State of the Economy”, was chaired by Rep. Maxine Waters.
In his testimony before the House Financial Services Committee, Federal Reserve Chairman Jerome Powell answered a number of questions regarding digital currencies.
While stating that “a ledger where you know everybody’s payments” is not a problem in China, he believes it is not attractive for the U.S. Admitting that Facebook’s Libra project was a wake-up call to the Fed, the chairman provided a progress update of the Fed’s digital dollar.
Public Ledger Not Attractive for the US
Illinois Representative Bill Foster asked Powell a number of questions about digital currencies, including the progress of the digital dollar, citing that the Chinese claims they will be rolling out their digital yuan “sometime very quickly.”
Fed Chairman Jerome Powell giving his testimony before House Financial Services Committee on Tuesday.
“Do you feel you have adequate visibility into what the Chinese are doing on this. Do you have working-level contacts that give you some idea of what their rollout is likely to do, like likely to look like?” Foster asked. Powell quickly answered, “Yes, I mean, we certainly have, that.” However, he clarified that the circumstances in the U.S. are completely different from China, elaborating:
For example, the idea of having a ledger where you know everybody’s payments is not something that would be, you know, particularly attractive in the United States context. It’s not a problem for China.
Enormously Important to Keep Currency Centralized
Referencing his discussion with Governor Lael Brainard, Foster asked Powell: “Do you think that establishing a digital dollar would help ensure that the U.S. dollar continues to serve as the core of the U.S. and the world’s financial system?” The Fed chairman replied, “Having a single government currency at the heart of the financial system is something that has served us well”, advocating for “preserving the centrality of a central widely accepted currency that is accepted and trusted is an enormously important thing.”
Citing that the private sector is innovating and every major central bank is currently studying central bank digital currencies, the chairman remarked: “It’s very much incumbent on us and other central banks to understand the costs and benefits and trade-offs associated with a possible digital currency.”
Foster also asked Powell how he would characterize the Fed’s progress on a central bank digital currency compared to other countries. The Illinois representative pointed out that one of the reasons why there is so much concern about the Libra project is that it would immediately have scale. He emphasized that another entity in a position to achieve similar scale is the Chinese government.
“How would you characterize our ability to respond to this potentially competitive threat?” Powell was asked. “We are working hard on it. We have a lot of projects going on, efforts going on, on that right now”, he replied, noting that the U.S. hasn’t had a problem of people moving away from cash as several European countries have. According to the Fed chair, “The amount of cash in the U.S. economy continues to grow faster than nominal GDP.” He continued:
There are many questions that need to be answered around digital currency for the United States, including cyber issues, privacy issues, many many relational alternatives present themselves.
“So we are going to be working through all that and doing all that work thoroughly and responsibly”, Powell added.
Libra: The Fed’s Wake-Up Call
Noting that the adoption of cell phone payments could happen in a couple of years, Foster asserted that the U.S. should be able to respond quickly when that happens, such as with a digital dollar. “I completely agree with that”, Powell responded, adding:
Frankly, Libra really lit a fire under that and it was a bit of a wake-up call that this is coming fast and could come in a way that it’s quite widespread and systemically important, fairly quickly if you use one of these big tech networks like Libra did.
In her opening speech, Waters also urged Powell to keep a watchful eye on Facebook and its Libra project. She asserted that Facebook’s planned Libra cryptocurrency and digital wallet launch “could have profound implications on monetary policies and compete with our own U.S. dollar.” Waters and a few other Democrats previously asked Facebook to halt the Libra project until Congress has time to examine the issue of big tech companies launching digital products and take action.