Federal Reserve Chairman Jerome Powell posted a long video and a statement Thursday, announcing that the Federal Reserve will get more involved in cryptocurrency and may even create its own digital currency later.
Along with other cryptocurrency research, Powell said the Federal Reserve will release a discussion paper this summer that “will explore the implications of rapidly evolving technology for digital payments, with particular emphasis on the possibility of ‘issue a digital currency from the US central bank. “
“As the central bank of the United States, the Federal Reserve is responsible for promoting monetary and financial stability as well as the safety and efficiency of the payments system,” Powell said Thursday.
âTo date, cryptocurrencies have not been a convenient way to make payments, given, among other factors, their fluctuations in value. Nonetheless, coins tied to the value of the dollar or some other currency – known as ‘stable coins’ – has emerged as a new way to make payments. “
He said that the use of stable coins can eventually become a way “to improve the efficiency of payments, speed up settlement flows and reduce costs for the end user.”
But he went on to cite the risks of technology as the reason the Federal Reserve is approaching digital coins with caution. Even stablecoins tied to the value of the dollar may not enjoy “the same protections as traditional means of payment, such as physical currency or deposits to your bank account,” added Powell.
Despite the risks, Powell said the Federal Reserve is exploring the ability of central banks to create central bank digital currencies for use by the general public.
“We believe it is important that any potential central bank digital currency can serve as a complement, not a replacement, for cash and current private sector digital forms of the dollar, such as deposits in commercial banks,” he said. Powell said. âThe design of a CBDC would raise important considerations of monetary policy, financial stability, consumer protection, law and privacy and would require careful thought and analysis, including the contribution of the public and elected officials.
The Federal Reserve is already studying a variety of regulatory and supervisory frameworks as the use of stablecoins increases, Powell said.
While no country has launched its own official central bank digital currency, many have launched pilot programs or research into the concept. The Bank of England spent years working on the idea and central banks in Sweden, Russia, Singapore, China, Thailand, Canada, Venezuela, and Uruguay are all in different stages of testing their own digital currencies.
Cryptocurrency and computer expert Jeff Steuart attributed the timing of Powell’s statement to China’s issuance of its central bank digital currency, e-CNY, earlier this year. Steuart said electronic currencies issued by the central bank give issuers unprecedented control over the timing and distribution of wealth among those participating in the system.
âConsidering the fact that the U.S. government alone would have spent $ 6.5 trillion in 2020 and the presence of 14 billion phones in the world at that time, the ability to electronically route spending directly to those in need is just too attractive a proposition, “he said.
“Specifically, the fear may center on electronic money as a way for China or other major economies to significantly enter the electronic money landscape, and thereby control this sector of the economy,” before the United States can. The Chinese e-yuan can in theory be tightly controlled by the government, to the point where the “ life time ” is shortened, forcing holders to spend their currency quickly before that it does not expire or begin to erode value and therefore pump up the economy, or cancel out the value of money as a form of punishment or control, etc. “
Steuart added that China is spending huge sums of money on foreign aid and by moving this foreign aid in the form of e-yuan, the US dollar could eventually be replaced as the dominant currency globally. . Apart from the geopolitical gambling spirit that underlies the Federal Reserve’s desire for electronic money, Steuart noted that this would allow them to control the amount of “value” in the system, who has it and also the speed at which money flows through the system. .
But these type of systems are the exact opposite of cryptocurrencies currently traded or purchased like Bitcoin and Ethereum. Investment cryptocurrencies, Steuart said, are decentralized systems specifically designed to prevent governments from controlling their issuance or valuation.
In his statement, Powell noted that the lack of regulation in the cryptocurrency industry has led some “private sector payments innovators” not to operate “under traditional regulatory arrangements applied to banks, businesses. investment and other financial intermediaries “.
The statement comes as the White House rolled out a new set of tax compliance initiatives that includes more funding for the IRS to focus on growing cryptoassets.
The U.S. Family Plan’s tax compliance program includes sections that say the IRS has identified cryptocurrency transactions “as an enforcement priority” and recently “included the cryptocurrency statement on the return. individual income, form 1040 “.
Companies that receive cryptoassets with a “fair market value” of more than $ 10,000 must report it on their taxes.