Analysis of central bank digital currencies (CBDCs), and their uses, will be aided by the just-opened New York Innovation Center, the chair of the Federal Reserve said Monday in opening the new facility.
Federal Reserve Board Chair Jerome H. (“Jay”) Powell said the center, located at the Federal Reserve Bank of New York, will operate in partnership with the Bank for International Settlements’ (BIS) innovation center.
“In particular, the partnership will support our analysis of digital currencies—including central bank digital currencies; help to improve our current payment system—with a particular focus on making cross-border payments faster and less expensive; and it will provide new tools to aid our supervision of the financial system,” Powell said in remarks delivered via webcast from Washington to the New York facility.
“Linking up with the BIS in this way will enhance our ability to collaborate with central banks around the world and will ensure that the best and most up-to-date information, research, and practices are flowing freely,” Powell said.
Powell also asserted that rapid innovation, including through the application of advanced digital technologies, machine learning, artificial intelligence (AI), and big data is “revolutionizing the financial sector.”
“The Federal Reserve has a mandate to understand and, in some cases, manage these changes, but it also has a responsibility to be at the forefront of change to deliver to the American people—and the international community—a reliable, efficient, and inclusive monetary and financial system,” he said.
Powell said the new Innovation Center will draw on the expertise at the New York Fed, in the Federal Reserve System itself, and “from the broader financial community, as well as experts around the world to analyze and bring technology to bear on improving the global financial system.”
The topic of CBDCs has proven to be controversial among Fed Board members over the last year. Powell, in testimony last July, said the agency wants broad support, among the public and Congress, before acting on CBDCs. He has also noted that he hopes the Fed receives power to act on CBDCs, calling it a “very important initiative and I do think we should ideally get authorization.”
In June, Powell issued a video message saying the Fed plans a close look at a U.S.-issued digital currency. He said the key focus for the agency is whether or how a CBDC could improve on what he called the existing “already safe, effective, dynamic, and efficient U.S. domestic payments system” in serving households and businesses.
Also in June, Fed Board Member Lael Brainard said that, by introducing safe central bank money that is accessible to households and businesses in digital payments systems, a CBDC would reduce counterparty risk and the associated consumer protection and financial stability risks.
Others are less convinced. Board Member Christopher Waller in August said he is “highly skeptical” about the need for a Fed-issued CBDC. And outgoing Board Member Randal Quarles, also in June, equated CBDCs to 1980s “parachute pants,” a fashion fad at the time. However, he also said that it is appropriate to “explore the benefits, costs, and practicalities of implementing one in the United States if such legislative authority were granted.”