Federal Reserve is likely to create a digital currency: Goldman Sachs

Goldman Sachs Chief Economist Jan Hatzius thinks it will be some time before the Federal Reserve creates a digital currency to compete with the dollar, but it’s likely to happen.

“The Fed I think partly because of the pre-eminent international role of the dollar is going to be slower than other central banks in introducing a digital currency. And there are quite a number of central banks globally that are hedged at this point and the Fed is still in the research stage. But ultimately, I think there is an appetite for introducing a digital currency,” Hatzius said on Yahoo Finance Live. “I think we will move cautiously because there is no appetite on the part of the Fed or other central banks to really potentially undermine the current payment system and financial system.

Fed chief Jerome Powell is fresh off showing his hand a bit on the future for a digital currency, lending support to Hatzius’ outlook.

Powell said in a presentation last week the governing body would continue its work on a digital dollar.

“The effective functioning of our economy requires that people have faith and confidence not only in the dollar, but also in the payment networks, banks, and other payment service providers that allow money to flow on a daily basis,” Powell said. “Our focus is on ensuring a safe and efficient payment system that provides broad benefits to American households and businesses while also embracing innovation.”

At the moment, crypto traders aren’t liking talk of competition from the Fed and fears of greater regulation out China.

Bitcoin prices were under massive pressure on Sunday, plunging more than 15% by afternoon trading. At $32,652, bitcoin prices have crashed about 50% from their mid-April peak of $64,829. Ether nosedived another 18% on Sunday, bringing its drop from an all-time high this month to roughly 60%. Early Monday morning, crypto recovered.

This content is not available due to your privacy preferences.

Update your settings here to see it.

Ultimately, Hatzius doesn’t think a digital currency from the Fed would create major risks to the financial system. That’s provided the Fed takes its time on its research on digital currencies and how they would fit into the financial system.

“I think small steps are not likely to be very disruptive [to the financial system]. Large steps could be disruptive. That’s why I think you need to move slowly, and gain a lot more experience before you ramp it up,” Hatzius said.