Cryptocurrencies had a great year in 2021. In this period, we have seen the market go from being classified as a billion-dollar economy into a trillion-dollar economy. Aside from that, cryptocurrencies are gaining visibility in the mainstream world with, for example, El Salvador's adoption of Bitcoin as the official digital currency. As a result, investors are looking for the "new Bitcoin" on the market, hoping to find a great alternative in so-called altcoins. Unfortunately, many traders value an altcoin exclusively…
While Jerome Powell remains cautious of the stablecoin sector, he has big plans for utilizing cryptocurrency technology for American benefit.
In a recent statement, he announced a related partnership between the Federal Reserve and the Bank of International Settlements. Together, the organizations will analyze how Central Bank Digital Currencies (CBDCs) can improve the current global financial system.
Powell’s Plans For CBDCs
The chairman announced the partnership during his opening remarks for the “Introducing the New York Innovation Center Event,” earlier today. The New York Innovation Centre is a new initiative aiming to explore technology for developing the financial system. Furthermore, the Federal Reserve Bank hosts it.
Powell said they would “increase the synergies” of the center by partnering with the BIS Innovation Hub. The hub’s goal is to facilitate communication and “knowledge sharing” between central banks.
“In particular, the partnership will support our analysis of digital currencies—including central bank digital currencies; to help improve our current payment system,” said Powell.
Yet more specifically, the partnership should increase the speed and efficiency of cross-border payments. Also, it should help “supervise” the financial system.
Due to the transparent nature of blockchain technology, a CBDC could theoretically track any users’ payment. Furthermore, it could even track small amount transfers. Though this would help combat money laundering, the concept has raised privacy concerns among many, including Edward Snowden.
The chairman acknowledges that the advancement of advanced digital technologies are currently “revolutionizing the financial sector.” As such, he considers it the Federal Reserve’s duty to stay updated on these developments to deliver an “inclusive,” “reliable,” and “efficient,” monetary system to all.
Powell’s Approach to Crypto
Powell has been investigating whether a CBDC would be a good fit for the United States for months. After being re-nominated by president Biden days ago, he should be able to see his plans through without a hitch.
Powell confirmed last month that he has “no intention to ban” cryptocurrency, spurring a sigh of relief from the crypto community. However, his regulatory concerns primarily lie with stablecoins, which operate outside of the government’s purview. Common criticisms include their ability to facilitate money laundering, and the uncertainty that they have sufficient reserves.
The chairman has argued that a CBDC could remove the need for such stablecoins. Also, he called it “one of the stronger arguments in its favor.”