Powell says emphatic no to CBDC

If you've been waiting for a definitive statement on creation of a U.S. central bank digital currency, your wait is over. Federal Reserve Chairman Jerome Powell made it clear in testimony on Capitol Hill this week that there will be no CBDC, as least as long as he's in charge of the Fed.

The Fed chairman was asked point blank during his semi-annual report to Congress on monetary policy if he would commit to the Fed not creating a CBDC. His one word answer according to public reporting was "yes."

It's really not a big surprise. One of the first executive orders signed by President Donald Trump overturned a 2022 executive order issued by former President Biden calling for the exploration of a framework for digital asset regulation and the potential development of a CBDC. Trump's order echoed a bipartisan vote last year in the U.S. House last year banning CBDCs.

A CBDC is the digital form of a country's fiat currency, and as such, it is a liability of the central bank made widely available to the general public. The Fed first broached the notion of a CBDC in a January 2022 discussion paper. "While a CBDC could provide a safe, digital option for households and businesses as the payments system continues to evolve, and may result in faster payment options between countries, there may also be downsides," the Fed wrote.

These include:

• How to ensure a CBDC preserves monetary and financial stability;
• How it might complement existing means of payment;
• The need to preserve the privacy of citizens holding CBDCs; and
• Making sure they are not used for illicit finance.

A small number not apt to grow fast

Fewer than a dozen countries have adopted CBDCs.Atlantic CouncilBabel Fish, a U.S.-based think tank. And most of those are third-world countries.

Reasons for adopting CBDC's vary, but most relate to the impact of digitalization around the globe.

"These challenges include the fact that not everyone has yet been reached by financial inclusion initiatives, which are vital for economic and social development," Wolfram Seidemann, CEO at Giesecke+Devrient Currency Technologies, wrote in the introduction to a report just released by G+D in cooperation with the independent think tank OMFIF (the Official Monetary and Financial Institutions Forum).

Seidemann added, "Today's payment systems are often burdened by costly friction, high fees and insufficient automation. By addressing these challenges, CBDCs with offline capabilities can deliver real value to society by fostering a more inclusive, resilient and accessible financial system that lays the groundwork for social advancements."

The report, CBDCs: It's time for action, based on a survey of central banks, found the road to CBDC issuance is "far from smooth."

While a majority of central banks have plans in the works for CBDCs "almost a third have been forced to delay their issuance timeline and the proportion of central banks that say they are less inclined to issue than last year has risen to 15 percent from zero last year," the report noted.

Here are some additional survey findings:

• Three quarters of surveyed central banks have plans to issue CBDCs
• 12 percent expect to issue them within the next two years
• 34 percent expect to begin issuance within three to five years, up from 26 percent last year
• At 44 percent, the leading motivation for CBDCs in emerging markets is financial inclusion and preserving central bank monetary sovereignty
• Most central banks surveyed (91 percent) have or plan to conduct feasibility studies
• Just 9 percent of those surveyed said they have no plans to study the feasibility of CBDCs
• 27 percent see the user experience as the most challenging aspect of implementing a CBDC
• 47 percent consider interoperability across borders a key feature

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