At a hearing on monetary policy on 12 February 2020, United States Congressman Bill Foster has challenged the Chair of the Federal Reserve, Jerome H. Powell, on the question of Central Bank Digital Currency (CBDC).
Doubts, Hopes, and Questions
Foster questioned Powell directly if a digital dollar would, in the course of time, prove to be a threat to the U.S. dollar. He asked if after a digital dollar is established as a currency, would it be able to ensure that the U.S. dollar retains its value or as he said, ‘continues to serve as the core of the U.S. and the world’s financial system’.
Powell, for his part, agreed to the important role of the dollar to the U.S. economy. He said that having a core currency is indispensable to the financial system, so much that no questions can be raised on the greatness of its importance. He also added that the role CBDC would finally play is a question of speculation and at present, it is being studied in deep detail by every current central bank in the country.
Apprehensions Regarding Competition
Foster also questioned Powell on how he was planning to tackle competitive threats in existing CBDC projects, citing China which was in a position to scale its digital Yuan by their forward digital payment system. Powell, on the other hand, emphasized that China and the United States bore very different institutional contexts in the central digital currency area.
Foster urged the government to take note of the issue so that future competitors like China do not gain a head start with their CBDC. He cited the country’s plan to use the digital Yuan in countries involved in the Belt and Road initiative.