During her testimony before the House Financial Services Committee, Powell revealed the Fed’s strategy in response to China’s digital Yuan. The Chair said that while a ledger where all payments were recorded was not a problem for China, it was not a good idea in the US. Jerome Powell admitted the potential launch of Facebook Libra had been a wakeup call for them. Maxine Waters, a fierce critic of Facebook Libra, chaired the hearing.
During the hearing, Bill Foster asked Powell various questions related to crypto. He even asked Powell about the possibility of launching the digital dollar. The representative noted that China was almost ready to launch its digital Yuan. Foster asked Powell whether they had some idea on the progress of China’s digital currency. In response, Powell said that the circumstances in China are different from those of the US.
Foster asked Powell whether a digital dollar would help to preserve the status of the US dollar as the global reserve currency. To this, Powell aid that having the US currency at the heart of the financial world had been quite good for the US.
He noted that the private sector was innovating and most central banks around the world were studying digital currencies. The fed chair said that it was important for them to understand the costs and benefits of launching a digital currency.
Progress of the Fed
Jerome Powell said that the Federal Reserve was studying various aspects of digital currencies including privacy. However, he noted that the US was still heavily reliant on cash, unlike some European nations. As a result, there was no major demand for a digital currency. The fed chair noted that the amount of cash in the US was growing faster than the nominal GDP.
The fed chair said that the launch of Facebook Libra had lit a fire under them and they were working hard to understand digital currencies. Foster noted that since phone payments could occur soon, the US should be ready to respond, possibly with a digital dollar.