Global: Federal Reserve Chair Powell Affirms Distant Plans for CBDC Implementation

Federal Reserve Chairman Jerome Powell, in his testimony before the Senate Banking Committee on March 7, dismissed the notion that the United States is close to adopting a central bank digital currency (CBDC).

Powell emphasized that the Federal Reserve is “nowhere near” taking steps toward the implementation of a CBDC, addressing speculation surrounding the Fed’s role in digital currencies and its potential impact on the American banking system and consumer privacy, as reported by Reuters.

During the congressional hearing, Powell clarified that the Federal Reserve has no intentions of creating individual accounts that would compete directly with private banks. Additionally, he assured that the central bank does not plan to monitor personal financial transactions through a CBDC framework. Powell stated that if the Federal Reserve were to explore a CBDC, it would do so through the existing banking system.

The legislative landscape regarding CBDCs was also touched upon during the hearing. On February 26, five Senate Republicans introduced legislation to prevent the Federal Reserve from issuing a CBDC, arguing that such a significant move should require Congressional legislation. Concerns were raised about the potential use of a CBDC for government surveillance, as suggested by Sen. Ted Cruz.

Beyond discussions on digital currencies, Powell addressed regulatory considerations, specifically referring to ongoing discussions about modifications to the Basel III endgame proposals. These proposed adjustments aim to enhance the way large banks assess risk and determine capital reserves to mitigate potential losses.

While the Basel III modifications have faced resistance from the banking industry since their introduction in July, Powell assured that any changes would be carefully considered throughout 2024 to strike the right balance, Reuters reported.

Members of the Senate Banking Committee expressed bipartisan concerns during the hearing, questioning the potential impact of Basel III modifications on mortgage affordability and the risk of pushing financial activities into less regulated sectors.

Sen. Elizabeth Warren raised questions about Powell’s involvement in the Basel III process and suggested that Vice Chair for Supervision Michael Barr should take the lead on these matters. Powell clarified that while Barr can propose ideas, the decision-making process involves collective input from the Fed’s board members.