Nikolas Sargeant
Federal Reserve Chair Jerome Powell made a definitive statement Tuesday, declaring that the US central bank will not develop a central bank digital currency (CBDC) during his tenure. This announcement effectively ends years of speculation about whether the Fed might follow China's path in launching an official digital currency.
During the Fed's semiannual testimony, Powell responded decisively to Senator Bernie Moreno's (R-Ohio) question, confirming that the US would abstain from introducing a CBDC while he remains chairman.
Fed's CBDC Research Reveals No Compelling Need
The Federal Reserve's extensive exploration of CBDCs, spanning over four years, culminated in a comprehensive 2022 study that analyzed potential advantages and disadvantages without reaching a definitive conclusion. Throughout this period, numerous officials voiced reservations, generally concluding that a CBDC was unnecessary while raising concerns about privacy implications.
Implementation challenges, ongoing debates regarding privacy versus surveillance, the efficiency of existing US payment systems, and questions about the Fed's authority to create a CBDC without Congressional approval all point against its development. Meanwhile, the Fed has launched FedNow, a payment system addressing many of the same challenges a CBDC would target. During the testimony, Senator Moreno advocated for expanding FedNow's 24-hour money transfer capabilities.
Powell's Leadership Extends Through 2026
Powell's leadership at the Fed continues amid intensifying debates over US monetary policy. Initially appointed by President Donald Trump in 2017, he now serves a term extending through May 2026. Despite past disagreements, particularly regarding interest rate decisions, President Joe Biden reappointed Powell for a second term in 2021.
Though Trump has expressed frustration with Powell's policies historically, he recently stated he wouldn't attempt to replace him, noting Powell's likely resistance to such efforts. In November, Powell himself confirmed he would not leave office early if Trump tried to remove him, citing legal protections for Fed governors' terms.
Aligned Opposition to CBDCs
Despite their differences, Powell and Trump share common ground in opposing CBDCs. Trump recently signed an executive order prohibiting their development, stating: "Except to the extent required by law, any ongoing plans or initiatives at any agency related to the creation of a CBDC within the jurisdiction of the United States shall be immediately terminated."
Trump has consistently opposed CBDCs, warning that they could enable excessive government control over personal finances.
