The United States doesn’t need a central bank digital currency (CDBC) because it won’t notably improve the nation’s financial system, nor will it enhance the USA’s ability to compete with either unregulated cryptocurrencies or rival nations’ CDBCs.
So said Randal K. Quarles, a member of the US Federal Reserve’s Board of Governors and its Vice Chair for Supervision, in a speech delivered on Monday to the 113th Annual Utah Bankers Association Convention.
Quarles said one argument he hears in favour of a US CDBC is to counter private cryptocurrencies, which he divided into two classes: “stablecoins and non-stablecoins”; and “cryptoassets, such as Bitcoin”.
The Vice Chair was not kind to Bitcoin, which he likened to gold inasmuch as it is scarce, and its price fluctuates.
“Unlike gold, however, which has industrial uses and aesthetic attributes quite apart from its vestigial financial role, Bitcoin’s principal additional attractions are its novelty and its anonymity,” he said.
“The anonymity will make it appropriately the target for increasingly comprehensive scrutiny from law enforcement, and the novelty is a rapidly wasting asset.
“Gold will always glitter, but novelty, by definition, fades. Bitcoin and its ilk will, accordingly, almost certainly remain a risky and speculative investment rather than a revolutionary means of payment.” Quarles therefore rated Bitcoin and its ilk as “therefore highly unlikely to affect the role of the US dollar or require a response with a CBDC.”
Quarles was more enthusiastic about stablecoins which, he argued, have risks but are not so exotic that regulators like the Fed don’t understand how to manage them. Stablecoins could also improve international payments, and that’s an outcome the Vice Chair sees as desirable because the cost and complexity of such transactions are among the weaknesses he sees in the USA’s current payment systems.
Those systems, he said, are generally robust — the USA’s current large-scale payment systems handle six trillion dollars of transfers each day without breaking a sweat. Quarles also noted that smaller payments can be slow, but that the Fed has therefore created a new instant payment scheme to speed things up. That scheme, called “FedNow”, is due to commence operations soon.
The Vice Chair also considered whether a US CBDC would help the nation compete with rival nations digital currencies. He concluded that the US dollar’s role as “the dominant currency in international financial transactions” won’t be challenged by a CBDC.
Gold will always glitter, but novelty, by definition, fades. Bitcoin and its ilk will almost certainly remain risky
“The dollar’s role in the global economy rests on a number of foundations, including the strength and size of the US economy; extensive trade linkages between the United States and the rest of the world; deep financial markets, including for US Treasury securities; the stable value of the dollar over time; the ease of converting US dollars into foreign currencies; the rule of law and strong property rights in the United States; and last but not least, credible US monetary policy,” he argued. “None of these are likely to be threatened by a foreign currency, and certainly not because that foreign currency is a CBDC.”
Quarles also worried that a US CBDC would be expensive to establish, represent an irresistible target for cyber-attackers, and could mean the Fed effectively becomes a retail bank.
The Vice Chair nonetheless welcomed the Fed’s ongoing exploration of a CBDC but concluded “I think the bar to establishing a US CBDC is a high one.” ®