Babbitt Column | America First? Discrimination of the attitude of the Federal Reserve's two parties to the CBDC

The hawks and doves are a political term used to describe people or groups that deal with major political, economic, diplomatic, or military issues, and whether they are dealt with in a tough, violent, or moderate, conservative manner. They are also used to refer to the above. Problem attitude.

The United States Federal Reserve System (Fed) is composed of 12 Federal Reserve Banks and the Federal Reserve Board of Core Management Institutions. According to the different focus on the implementation of monetary policy, the views of members of the Federal Reserve Board and the governors can also be divided into hawks and doves Two types, the general term "hawks" who advocate controlling inflation and tending to raise interest rates quickly, and those who advocate stimulating employment, preferring monetary easing or gradual rate hikes are considered "doves."

Regarding the issue of whether the Federal Reserve needs to issue a CBDC, according to the current observations, the members of the Federal Reserve Board and the Governor of the Federal Reserve Bank have expressed their views on digital currencies. Federal Reserve President Huck, and Federal Reserve Board Member Brainerd. Of these people, only Brainerd is a more thorough dovish, and other senior Fed officials are either tough hawks or swing left and right. Similar to the evolution of the views of the two factions on other issues of the central bank, as the situation changes, no matter which faction has adjusted its views on the CBDC, but there are differences in the understanding of the necessity and urgency of conducting R & D. Can be roughly divided into the following categories.

I. Hawk view: The US CBDC will not be issued in the short term, and it is not necessary to issue it first.

In April 2017, President of the Federal Reserve Bank of Philadelphia, Patrick Huck, said at the University of Pennsylvania's keynote speech on fintech that the Federal Reserve will not issue digital currencies in a short period of time.

" While some governments are exploring the possibility of creating their own digital currency, as my colleague Director Powell has recently pointed out, there are still obstacles including technical challenges, unprecedented risks of cyber attacks, crimes such as money laundering and personal privacy threats activity."

Even in October 2019, at a conference in St. Louis, Huck still believed: "While the Federal Reserve is inevitable to issue digital currency in the future, the United States should not be the first country to issue digital currency of the central bank , because this technology is currently still Not very mature, and the dollar remains the world's reserve currency. "

Second, centrist views: Central bank digital currency research should be carried out, but issuance should be undertaken with caution

Randall Qars, the current vice chairman of the Reserve Bank of China for regulatory affairs, is also the center of the FSB (Fed Financial Supervisory Board). At the Washington Conference in November 2017, he acknowledged that the issuance of CBDC may bring problems such as cyber attacks, money laundering, and financial disintermediation, and he should be cautious.

"I am particularly concerned that a digital currency issued by a central bank and widely held around the world may be the target of a serious cyber attack and may be widely used for money laundering and terrorist financing …. A government support The prospect of digital currency may even undermine the private sector's plans to strengthen the provision of payment services to customers, which will greatly disrupt the existing financial network and may cause instability. "(Reuters, 2017)

He said that it is necessary to continue the research on the digital currency issue, but the focus has recently been on improving the current bank payment system.

Third, moderate dovish perspective: pay close attention to carry out research-based technical experiments

Represented by Fed Chairman Powell and New York Fed President Dudley, on the one hand insisting that the issuance of CBDC has no substantial benefit to the United States, and on the other hand that it should conduct a comprehensive and in-depth discussion of various issues that may be brought about by the issuance of CBDC.

In March 2017, Powell, then a member of the Federal Reserve Board, delivered a speech entitled "Innovation, Technology, and Payment Systems" at Yale Law School, talking about the central bank's issuance of digital currencies. There are some "important policy issues." Need to consider, for example, technical challenges such as network attacks, network counterfeiting and theft, the balance between privacy and risk brought by user data collection and storage, and policy issues such as payment systems. He emphasized that private sector innovation can completely replace the effect of the central bank's issuance of digital currency. "If the central bank issues digital currency, it will compete with these innovative private sector products and will inhibit innovation in the long run."

After the Libra coin was thrown out on Facebook in 2019, Powell, the soul of the Federal Reserve ’s decision-making circle, talked about central bank digital currencies in a speech at the University of Zurich, revealing that the Federal Reserve is paying close attention to digital currencies. Things, but do n’t think the central bank ’s digital currency will have an impact in the short term. ”

Two months later, US Congressmen Bill Foster and Frank Hill asked the Federal Reserve whether they had any plans to develop digital currency in US dollars, and responded to other countries' requirements for legal digital currency. The development prospects of the central bank's digital currency "show attitude. Powell's response was: The Fed is not currently developing the USD central bank digital currency. The first reason is that there is no urgent need for issuance, that is, insufficient motivation. Unlike some countries, where there is a "significant decline in cash usage", "narrow or highly concentrated banking services", " "Underdeveloped payment infrastructure" and other issues, so it is only conducting "small-scale, research-oriented technical experiments" ; the second is to resolve legal, regulatory and policy issues before issuing. In short, "the general digital currency has not been found to have more practical benefits in implementing monetary policy" can replace the current central bank system.

At the same time, US Treasury Secretary Mnuchin's statement at the House hearing echoed Powell:

"President Powell and I have discussed this-we all agree that in the near future, the Fed will not need to issue digital currency in the next five years."

Fourth, complete doves: Issue of CBDC will bring some problems, but the Fed must keep ahead

At the beginning of 2020, the central bank ’s research and development of CBDC will be opened. During the Davos Forum, BIS teamed up with six central banks to establish a CBDC R & D team, released a toolkit for CBDC decision-makers, and BIS announced the second survey of the progress of global central bank research and development of CBDC . Within 10 days, the CBDC R & D team announced its R & D plan for this year: the first meeting was held in Washington, USA in mid-April to discuss how to create digital currency standards and security measures for cross-border payments. An interim report is issued in June and a final report is issued in the fall. In this situation, if the United States still wants to maintain the status of sovereign currency leader, but is absent from the international CBDC R & D, it is too out of place.

Recently, Lyle Brainerd, the well-known Fed's dovish and permanent member of the Federal Open Market Committee, gave a speech at the Stanford Business School. Almost, but the difference is that as the Fed's influential decision-making figure, she clearly stated for the first time that the Fed will be the leader of CBDC R & D, and it will pay for settlement, financial stability, monetary policy, financial supervision, and legal construction A systematic analysis of the preparations required to create a CBDC.

This is the first time a senior Fed official has made a clear and positive statement on the CDBC R & D issue:

"Given the important role of the US dollar, we need to maintain the leading position in CBDC research and policy development . Like other central banks, we are conducting research and trials on distributed account technology and its digital currency case, including the possibility of issuing a CBDC. We are working on Work with other central banks to improve understanding of central bank digital currencies. "

With regard to the issue of issuance, her idea is consistent with Powell's, that is, there is no rapid decline in the use of cash in other economies in the United States, weak financial institutions, and underdeveloped payment systems. However, some countries' payment systems may use stablecoins, and the number of central banks that start CBDC R & D is increasing. In particular, China's pace of advancing digital currencies is constantly accelerating. These have all formed major challenges for the US dollar to dominate the world. It is not enough to shake its exclusive status, but it must be on the agenda and become a leader and rule maker of CBDC R & D instead of a simple statement.

According to Brainard, "We are working with other central banks to improve our understanding of central bank digital currencies." My analysis should refer to working with the 7-line CBDC R & D team. In mid-April, the group's initial report meeting was located in Washington. The intention was obvious. Recently, Japanese Deputy Foreign Minister Norihiro Nakayama stated that he is highly concerned about the impact of China's DC / EP on the global reserve currency system and currency leadership, and hopes that the Federal Reserve will work with the 7-line group to jointly develop a CBDC to address the impact of China's DC / EP (Bloomberg, 2020 ).

In summary, from the perspective of senior officials of the Federal Reserve, from hawks and centrists to moderate doves and complete doves, there is a certain difference in the understanding of the development of the CBDC. It is not entirely due to time and environmental impacts. The factional affiliation of persons with decision-making voting rights is of some relevance. However, the Fed's directors are appointed by the president, and the government's economic policy has an impact on the direction of the Fed's decisions. The division between the Fed's doves and hawks is not monolithic, and will adjust accordingly as the economic situation changes. Although an official's position on the CBDC can give people the expected space, it is not of substantial significance. What really matters is the decision to drop the boots .