(Reuters) – The U.S. dollar’s status as the global reserve currency is unlikely to be threatened by a foreign central bank digital currency (CBDC) and any proposals to create a digital dollar issued by the Federal Reserve must be subject to careful scrutiny, Fed Vice Chair for Supervision Randal Quarles said on Monday.
The Fed official said the U.S. central bank should study the pros and cons of potentially creating an official digital currency, a process the Fed is undertaking now. But he said any proposal to create a U.S. central bank digital currency, or CBDC, must clear a “high bar.”
“Before we get carried away with the novelty, I think we need to subject the promises of a CBDC to a careful critical analysis,” Quarles said in remarks prepared for the annual Utah Bankers Association Convention. “I will especially have to be convinced that the potential benefits of developing a Federal Reserve CBDC outweigh the potential risks.”
Quarles said the U.S. dollar is already “highly digitized” and expressed skepticism that a CBDC would help to improve financial inclusion or lower financial costs. Some of those issues may be better addressed with other solutions, such as broader access to low-cost banking accounts.
A CBDC issued by the Fed could also hinder financial innovation in the private sector and pose a threat to the banking system, which relies on deposits to issue loans, he said.
The Fed will release a discussion paper this summer about the benefits and costs of a CBDC and the Boston regional arm of the Fed is doing research with the Massachusetts Institute of Technology on the technology that could be used for a digital currency.
(Reporting by Jonnelle Marte; Editing by Paul Simao)
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