American lawmakers on the House Financial Services Committee sent a series of questions to Federal Reserve Chairman Jerome Powell this week regarding whether the nation’s central banking system had any plans to launch a digital dollar, namely a cryptocurrency.
Those lawmakers were U.S. Representative Bill Foster (D-Illinois) and U.S. Rep. French Hill (R-Arkansas). Rep. Foster currently serves as a co-chair of the Congressional Blockchain Caucus, a bipartisan group of legislators who have come together to back blockchain and cryptocurrency causes in America.
The crux of the congressmen’s letter centered around their observation that “the nature of money is changing,” and the legislators wanted to know if the Fed had specific views on the central banking system embracing these changes.
“With the potential for digital currencies to further take on the characteristics and utility of paper money, it may become increasingly imperative that the Federal Reserve take up the project of developing a U.S. dollar digital currency,” the congressmen wrote.
The legislators said the “primacy of the U.S. Dollar could be in long-term jeopardy from wide adoption of digital fiat currencies” if this trend isn’t preempted, pointing to remarks made by coming European Central Bank president Christine Lagarde last year in which she said central banks might “go beyond regulating cryptocurrencies and develop individual national digital currencies of their own.”
Accordingly, the congressmen noted to Chairman Powell that cryptocurrencies can be money and do not have to stay stuck in the realm of speculation. The duo highlighted the Wells Fargo Digital Cash pilot as an example of how work is already being done on this front.
“While some Americans currently use cryptocurrency for speculative purposes, usage of digital assets may well increasingly align with that of paper money in the future,” the legislators said.
As for specific questions, the representatives asked the Chairman how the Fed would respond to the rise of digital currencies, if it had any plans for doing so now, and what risks and obstacles might the body face in such a pivot.
Banks Talk to Fed About Facebook Libra, Too
The Facebook Libra stablecoin project has an unpopularity problem among powerful regulators and traditional institutions alike.
A new thread in that dynamic comes as the Federal Advisory Council (FAC), a group of representatives from 12 large banks that advises the Fed’s Board of Governors, recently met with those governors and expressed their strong reservations toward the Libra, among other things.
Notably, not least among those reservations was the Council’s concerns that the Libra or other projects like it could disintermediate banks and traditional financial services.
“Some Council members have suggested that, as consumers adopt Libra more deposits could migrate onto the platform, effectively reducing liquidity, and that disintermediation
may further expand into loan and investment services,” a summary of the Council’s opinions read.
The banks’ representatives proposed that alternative currencies like the Libra should be “followed by the creation of a dynamic regulatory framework, likely global in nature” that would work to “preserve the integrity of the global financial system.”
Digital Yuan Is Likely Coming First
Recent reports out of China suggest the Asian superpower’s central bank, the People’s Bank of China (PBoC), has been accelerating work on a digital yuan that will be like Facebook’s cryptocurrency in some respects.
That suggests PBoC is far ahead of the Fed on the matter. And there’s good reason for that, per top Chinese officials who have signaled the effort is to bolster the yuan — particularly against the dollar.
“It is to protect our monetary sovereignty and legal currency status,” said Mu Changchun, the former deputy director for the payments division at PBoC, in September.
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