The New York Fed President says cryptocurrency poses challenging questions for young banks

New York Federal Reserve Bank’s President John Williams believes the emergence of cryptocurrencies poses a significant challenge to existing regulations and highlights the ongoing discussions that planners are having about existing policy decisions about blockchain technology and central bank digital currencies or lead CBDCs.

Before central banks like the Federal Reserve can issue their own CBDCs, several key issues related to blockchain technology and regulation need to be addressed, Williams told a panel chaired by the Bank International Payments Organization. In particular, Williams said policymakers need to outline how blockchain-based payment systems work alongside physical cash.

Williams is a member of this year’s Federal Reserve Open Market Committee, the group responsible for setting US monetary policy. The 11-member committee meets eight times a year to review the economic and financial situation before voting on monetary policy. Earlier this month, Williams and his colleagues voted to keep interest rates unchanged.

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It is estimated that central banks, representing one fifth of the world’s population, could issue CBDCs in the next three years, although the pace and purpose of implementation vary widely from country to country. According to the Bank for International Settlements, emerging economies have a stronger incentive to pursue CBDCs due to local economic and financial conditions.

The Fed has started preliminary investigations into CBDC development, although no timetable has been set for pursuing such projects. Williams’ colleague, Dallas Fed President Robert Kaplan, said in November 2020 that the central bank should start working on a digital dollar as soon as possible.