Federal Reserve Chairman Jerome Powell speaks during a press conference in September 2019.
The rapid development of the Chinese Communist Party’s digital version of the yuan will not prompt the Federal Reserve to accelerate its own digital currency program, Federal Reserve Chairman Jerome Powell said Wednesday (April 28). And he added that the Chinese Communist Party’s approach to the digital yuan would not work in the United States.
In a speech following a recent Fed policy meeting, Powell emphasized that the Fed’s primary goal is not to accelerate its push to market, but to avoid any catastrophic failure in digitizing what is still the world’s main reserve currency, the U.S. dollar, Reuters reported.
“Getting this right is far more important than getting it done quickly,” Powell said. “The (digital) currency currently used by the Chinese Communist Party doesn’t work here. It really allows the government to see every single payment in real time.”
Powell said the U.S. central bank is taking time to understand the capabilities that digital currency could bring. That includes making sure the technology is applied in a way that makes sense for countries and people who rely on the U.S. dollar as the world’s reserve currency, he said.
“A central bank digital currency is now possible,” Powell said. “We need to understand if this is a good thing for the people we serve.”
Powell has previously made it clear that the Federal Reserve cannot move forward with digital currency without action from Congress. Currently, the Fed’s Boston-area branch, in conjunction with the Massachusetts Institute of Technology’s (MIT) Digital Currency Initiative project, is studying what a digital currency for central banks should look like.
The research project is expected to last two to three years. A separate policy development process will be needed before the Federal Reserve can release its own digital currency.
In contrast, the Communist Party of China has already begun piloting a digital yuan. This has led some analysts to question whether this will lead to the yuan in China – the fast-growing world’s second-largest economy – taking over the dominance of the U.S. dollar.
According to the International Monetary Fund, the U.S. dollar will account for nearly 60 percent of the world’s official foreign exchange reserves by the end of 2020, while the Communist Party’s share will be just 2.25 percent.
Some market watchers agree with Powell that investors and other parties won’t necessarily embrace the digital yuan, even though it entered the digital currency space much earlier.
What we’re seeing [with the digital yuan] is a currency that will not be largely anonymous and will be strictly controlled by the government,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto. ” “It’s like apples and oranges. What the Fed is trying to achieve is a very different financial system and a very different set of goals to achieve.”
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