Fed Chief Bets That US's 'First-Mover Advantage' in CBDC Race Is Stronger Than China's
Jerome Powell, the chairman of the US Federal Reserve (the Fed), has suggested that the United States is in no rush to issue a central bank digital currency (CDBC), opining that the dollar’s status as the de facto world reserve currency will provide the nation with “first-mover advantage” – no matter what policies other nations roll out on digital currencies. And a researcher seems to agree with this approach.
In a Yahoo Finance webinar, Powell stated,
“Since we are the world’s reserve currency, we think we need to get [CBDC] issuance right. We don’t feel an urge or a need to be first.”
He also claimed that there were “benefits” as well as “unresolved questions and potential costs” when it comes to CBDCs, and stated that the Fed intended to launch a program of “outreach” to the financial sector to gauge if stakeholders really “needed” a digital dollar and understand “how it would help” the industry.
He reiterated his previous claims that “We’re determined to do this right, rather than quickly, and it will take some time – measured in years, rather than months.”
However, Powell appeared to hint that the rising popularity of crypto and other digital assets could force the Fed’s hand, conceding,
“Since [a CBDC launch] is possible and the private sector is already kind of doing it, I think this is something we need to take very, very seriously.”
Powell’s comments appear to fly in the face of conclusions from economists at the European Central Bank (ECB) late last year that suggested countries that lag behind in the race to issue a CBDC could be forced to pay a price in the medium-term, and could even lose control of their own monetary policy as a result of neighboring or rival states beating them to CBDC issuance.
The economists warned that early CBDC rollouts would provide a “significant first-mover advantage to its issuer.”
Meawnhile, in a recent paper, Peterson Institute for International Economics research fellow Martin Chorzempa wrote,
“Emerging markets like China are more likely to perceive benefits worth the risk of CBDC issuance, while high-income economies like the United States are taking a more gradual approach that minimizes potential disruption.”
China is in the advanced stages of its own digital yuan project.
“The Fed most likely has concluded that the risk of piloting or issuing a CBDC in a few years will be significantly lower due to the ability to learn from accumulated experience in other countries. Only then will experts and the general public know to what extent CBDCs will advance financial inclusion, how to include security features that can handle the risk of cyber threats, whether disintermediation or a flight out of banks in financial crises can be prevented, the cost trade-offs, and other considerations,” Chorzempa said, adding that one drawback of this strategy is that the Fed will not be able to gain some of the practical “learning by doing” knowledge that China is gaining now.
However, the research fellow opined that the Fed is likely slowings its digital dollar rollout purposefully, as part of a carefully planned strategy, adding,
“This course of action does entail the risk that the [Chinese central bank] will gain a first-mover advantage, but the analysis here suggests that the pace of technology and market development will make any first-mover advantage difficult to sustain in the short term, due to the absence of an ecosystem that would facilitate rapid development of network effects.”
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