Fed chairman says the ‘Digital Dollar’ won’t replace cash

The US Federal Reserve chairman Jerome Powell has confirmed that the potential’ digital dollar’ will not eliminate the need for cash in the US

The Fed Chairman Jerome Powell yesterday clarified that the new digital currency would have to coexist with physical cash if successfully developed and implemented. He stated that introducing a central bank digital currency wouldn’t mean the extinction of physical money as the latter will still be needed.

“A recent report from the Bank for International Settlements and a group of seven central banks, which includes the Fed, assessed the feasibility of CBDCs in helping central banks deliver their public policy objectives”, the Fed Chair revealed in a pre-recorded video that was featured in a payments conference held in Basel.

The potential ‘digital dollar’ will be integrated alongside physical cash without disrupting the current payment system.

“Relevant to today’s topic, one of the three key principles highlighted in the report is that a CBDC needs to coexist with cash and other types of money in a flexible and innovative payment system.”

Although the Digital Dollar has been mentioned in the media several times before, no concrete developments have surfaced around it yet.

Powell explained that the COVID-19 pandemic had played a crucial role in spurring innovation within governments regarding how to handle and make financial transactions work. He gave his fair assessment on the Federal Reserve’s overall performance, saying it had made significant headway in the face of stumbling blocks.

“The COVID crisis has brought into even sharper focus [on] the need to address the limitations of our current arrangements for cross-border payments. And as this conference amply demonstrates, despite the challenges of this last year, we still have been able to make important progress.”

The Fed Chair’s comments on the ‘digital dollar’ reiterate remarks made by Christine Lagarde, president of the European Central Bank, about a Digital Euro. Last year, Lagarde advanced that the Digital Euro would serve to complement and not replace cash. She also suggested that it would help position sovereign money at the centre of payment systems across the region.

Countries like China and England are reportedly working to develop their digital currency versions, with the former already moving into piloting its digital currency.

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