On Monday, Members of US Congress French Hill and Bill Foster wrote a letter to Chairman Powell of the Federal Reserve, asking him whether the central bank is prepared for the rise of digital currencies. Hill and Foster, as members of the House Financial Services Committee, said that the dollar might be left behind by cryptocurrencies and private ‘stablecoins’.
“We are concerned that the primacy of the US Dollar could be in long-term jeopardy from wide adoption of digital fiat currencies,” they wrote. And they’re not the only ones. Two weeks ago, Benoît Coeuré of the European Central Bank suggested that stablecoins could become the new ‘global currency’.
For this reason, Hill and Foster urged the Fed to look at building its own central bank digital currency (CBDC). They specifically ask for details of the bank’s plans for the possibility of public or private stablecoins gaining traction. The letter points JP Morgan’s fiat digital currency, Wells Fargo’s upcoming crypto project, and, unsurprisingly, Facebook’s Libra.
“The Facebook/Libra proposal, if implemented, could remove important aspects of financial governance outside of US jurisdiction,” the letter reads. This concern over Libra mirrors, but is not quite as urgent as, the fellow Financial Services Committee members’ request for a complete halt of operations. US law makers continue to be someof Libra’s loudest critics.
Hill and Foster appear to be wondering why the US central bank has yet to move on digital currencies. They point out Christine Lagarde’s comments last year, where she spoke of CBDC’s possible consumer role. At the time, she lead the IMF, which recently outlined the risks of digital currency. Other nations have beat the US to the punch, including Sweden’s e-krona, Uruguay’s e-peso, China’s upcoming CBDC, Thailand’s research, and the exploration by Singapore’s central bank.
It is unlikely that the Federal Reserve isn’t one of the 70% of central banks exploring digital currencies. Especially with Libra making such an impact on US finance lawmakers. However, it hasn’t made any announcement or indication of it looking at its own CBDC.
While this summer the Fed announced a real-time payment system, it will not be launched until 2023 or 2024. Plus, there was no explicit mention of digital currency, the advent of which Hill and Foster compare to the rise of paper money in 9th century China. As written to Powell, “the nature of money is changing” – but where will the US be when it does?