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Highlights
- Fed chair promised lawmakers that the Fed would never follow a system that would let the central bank see what people are doing with their money.
- While actively discussing controlling the digital currency markets, the central bank supported active discussion around CBDC.
- Bitcoin or even CBDC has the potential to disrupt and destabilize the existing financial infrastructure system.
On the second day of testimony in front of congressmen, Fed chair Jerome Powell said that the central bank digital currency (CBDC) might not be on the cards right now. According to Bloomberg, the Fed chair promised lawmakers that the Fed would never follow a system that would let the central bank see what people are doing with their money and stated that a digital version of the currency is a long way off.
Fed to Not Legalize a CBDC Anytime Soon
According to Bloomberg, Powell argues that people shouldn’t worry about digital money issued by central banks since it won’t be a concern for the US anytime soon. Powell also drew attention to the privacy issues associated with a digital currency under government control.
Fed’s concerns were similar to those raised by other important government bodies in the world. The IMF states that vulnerabilities in the CBDC could be used to undermine a country’s financial system. On an unprecedented scale, CBDCs would be able to gather sensitive payment and user data. If misused, this information could be used to steal money, gather security-sensitive information about people and organizations, and eavesdrop on citizens’ private transactions.
Read Also: Philippines Enforces Crypto Clampdown, Binance Exempt
Fed Still Keeps Ambiguous Stance on CBDC
The Federal Reserve wasn’t outright against cryptocurrency in the past. While actively controlling the digital currency markets, the central bank supported active discussion around CBDC. An example of the same was “The Money and Payments: The U.S. Dollar in the Age of Digital Transformation”. It was a previous publication from the Federal Reserve that focused on CBDC. The publication of the paper marked the beginning of a candid and inclusive public discourse around CBDC. Fed has time and again reiterated that if legislation allowing CBDC were approved, it would certainly need Congressional approval.
Why is Bitcoin and CBDC an Issue for Governments?
According to Investopedia, governments everywhere are monitoring the development of CBDC and Bitcoins and taking appropriate actions to then regularize it. Some, like El Salvador, have acknowledged it as legal tender. Some even treat it as a commodity or piece of property, forbid it outright, or simply won’t acknowledge it. The European Union’s 2023 framework for regulating cryptocurrencies is an illustration of the same.
Among other things, Bitcoin enables people to challenge their country’s authorities. This can be accomplished by surpassing the capital restrictions set by the government. It also aids in thieves’ ability to evade detection, which supports dishonest behavior. Finally, by eliminating middlemen, Bitcoin or even CBDC has the potential to disrupt and destabilize the existing financial infrastructure system.
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