Federal Reserve Chairman Announces That Creating A Digital Dollar Is A High Priority

On February 23, 2021, the Federal Reserve Chairman, Jerome Powell, told the Senate Banking Committee that the Federal Reserve is “looking carefully” into whether the central bank should issue a U.S. digital dollar.  “This is something we’re investing time and labor in right across the Federal Reserve System,” Powell said, calling it a “very high priority project for us.”  

The world’s largest central banks are toying with the idea of issuing digital currencies.  While most projects are at the early stages, efforts have been accelerated in the past year after Facebook announced its plans to develop its own digital token, called Libra.  Central banks have become concerned that they could lose control over payment systems if private currencies like Libra take hold.

During the hearing, Powell explained that there remain “significant technical and policy questions” related to a digital dollar, including “the need to protect a [Central Bank Digital Currency (“CBDC”)] from cyber attacks, counterfeiting and fraud, the question of how a CBDC would affect monetary policy and financial stability, and also how could a CBDC prevent illicit activity while also preserving user privacy and security.”  

Therefore, the Fed has determined that “it’s more important to get it right than to be first” among its peer central banks to launch a digital currency.  At this time, the board of governors in Washington D.C. is carrying out one set of experiments, and efforts are underway, through the Federal Reserve Bank of Boston in collaboration with researchers at the Massachusetts Institute of Technology, to develop a hypothetical central bank digital currency.