Federal Reserve vice chair for supervision Randal Quarles took a cautious tone on the central bank’s efforts to establish a digital version of the US dollar, saying the race to issue one ahead of other major economies can’t take priority over getting it right.
Quarles told SIFMA’s Annual Meeting there is a strong case to be made for the US issuing a central bank digital currency to maintain the dollar’s place as the top universal medium of exchange in global finance. But a range of potential issues must be fully examined, he said, including national security risks.
“The susceptibility of central bank digital currency to some form of cyber interference is something we have to make sure we understand and that we’re confident about,” Quarles said.
Such a move could also have implications for financial stability during periods of stress by disrupting flows from other types of assets at both the institutional and individual levels, he said.
“You could imagine that as perhaps adding to financial instability in a period of stress if it was easier to leave other forms of short-term assets for cash and for central bank cash, and for that not just to be a wholesale phenomenon but a broad retail phenomenon,” Quarles said.
Speaking earlier at the event, Health Tarbert, chairman of the Commodity Futures Trading Commission, expressed concern that the US was falling behind competitors by not more aggressively pursuing a CBDC.
“My major concern is making sure the US stays a leader and that we don’t fall behind,” Tarbert said. “What I hear about China and other countries moving far ahead of us, that does concern me.”
Quarles said the US is “heavily engaged” both internally and with outside bodies such as the Bank for International Settlements on the development of a CBDC, but he stressed that the Fed is not going to rush the process solely to beat global competitors, echoing remarks by Fed chair Jerome Powell earlier in the week.
“It’s particularly important for the US to get it right as opposed to being first,” Quarles said. “We shouldn’t lag, but we don’t have the luxury of experimenting and we should learn from all the various efforts that are going on before we make a decision.”
Tarbert said he would like to see the government work more closely with the private sector to move the project forward.
“I would encourage the Fed and other regulators, other government bodies, to tap into America’s private sector, because that’s where the cutting-edge innovation is and it’s unmatched anywhere in the world,” Tarbert said.