The growth of cryptocurrencies and the recurring theme of financial inclusion sees many countries ramp up discussion around central bank digital currencies (CBDCs).
Countries like China are on the fast-track to roll out a digital yuan in the shortest possible time, while others are actively exploring the idea.
The world’s largest economy seems to be leading the pack from behind, or so some claim, but the Federal Reserve Chief Jerome Powell says the US is not in a hurry to launch a digital dollar.
Cryptocurrencies Can’t Replace Dollar Due To Volatility
Federal Reserve boss Jerome Powell said on Monday even though cryptocurrencies have gained mainstream acceptance, they are not a =replacement for the dollar.
“They are highly volatile, see Bitcoin, and therefore not really useful as a store of value,” Powell explained on Monday.
He further warned American citizens of the risks inherent in trading cryptocurrencies like Bitcoin due to their volatile nature. He said the Feds call digital currencies “crypto-assets” because of their volatility, making them ill-fit to serve as a medium of exchange.
The Fed Chief sees decentralized cryptocurrencies as speculative tools and compares them to gold as a store of value.
But despite this criticism, Bitcoin has come a long way in its 12-year journey. The virtual currency, which made its first significant ATH of $20K in 2017, now trades close to the $60K mark after a significant push by institutional demand.
Growing belief in its capability as a hedge against inflation has seen tech companies like MicroStrategy, electric car company Tesla Inc. payments company Square and a host of others snapping up available BTC. Even Tesla is already proposing the idea of Bitcoin being exchanged for its electric cars.
This could see a significant shift in the Bitcoin narrative.
Federal Reserve Actively Exploring CBDCs Behind Closed Doors
Powell said the US government has been reluctant to jump on the CBDC bandwagon because it wants to understand the real risks CBDCs may pose to American society’s economic well-being.
This decision is why the Feds is conducting extensive research in a private lab and partnering with the Massachusetts Institute of Technology (MIT) through its Boston branch to look into a CBDC use case.
According to Powell, they are not in a hurry to bring out a digital dollar, even as many experts say China is widening the gap as weeks pass by.
Powell says the real question they are battling with is the necessity of a state-backed digital currency, given that the present payment systems are not outdated.