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According to Powell, the Covid-19 crisis has not only accelerated the digital payment adoption but also shifted focus to redefine the global cross-border payment system.
Speaking at a conference hosted by the Committee on Payments and Market Infrastructures, Basel, Switzerland (Via Prerecorded Video), Federal Reserve Chair Jerome Powell said that CBDC needs to coexist with cash and other types of money. Besides, Powell noted that the central bank’s digital currency should not only be flexible but also foster innovation, particularly in the payment system.
Although Powell did not further explain what he meant with other types of money, it is prudent to add digital currencies including Bitcoin in that category. Notably, Bitcoin and most altcoins have demonstrated features that support them as a medium of value transfer.
Fed Chair Powell on CBDC Development
According to Powell, the Covid-19 crisis has not only accelerated the digital payment adoption but also shifted focus to redefine the global cross-border payment system. Most transactions have been noted to take place digitally in the past few months, fueled by the already set infrastructure to improve the payment system.
Powell noted that a group of twenty G20 members directed the Financial Stability Board (FSB) to further study and outline a roadmap on how to enhance cross-border payment systems. Key factors that the board focused on were scalability, data security, interoperability, and AML compliance.
The board identified that emerging technologies with the help of the private sector can cover all the said features of a desired cross-border payment system. The United States Fed has been conducting tests on CBDC to ensure it meets the standards already set by the dollar as the global reserve currency.
“Experiments with central bank digital currencies (CBDCs) are being conducted at the Board of Governors, as well as complementary efforts by the Federal Reserve Bank of Boston in collaboration with researchers at MIT,” Powell explained.
In the future, digital currencies will not eliminate the fiat currencies but coexist symbiotically, according to Powell. However, with the increased demand for digital payments, CBDCs are expected to dominate most markets.
Moreover, the Republic of China is already miles ahead on the CBDC rollout. Chinese Central Bank has rolled out digital Yuan in several cities across mainland China. The country anticipates overthrowing the dollar as a global reserve currency. Mind you, China has been reported to have dumped a significant chunk of its dollar reserve market, which has increased the dollar inflation and decline in value.
Digital assets are set to significantly benefit from the CBDC rollout. Some of the notable benefits of CBDC on digital assets include increased mass adoption due to market interoperability.
Powell concluded by saying that countries need to work together to oversee the intended CBDC success. Different global central banks will have to develop CBDCs that are interoperable to ensure cross-border payments thrive in the future.