Where the Fed Stands on Crypto and Digital Currencies

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Where the Fed Stands on Crypto and Digital Currencies

The Federal Reserve System, the United States’ central bank, has been considering policy responses to the emergence of cryptocurrencies and digital currencies. For example, Federal Reserve Chair Jerome Powell acknowledged in his press conference following the FOMC meeting that ended on September 22, 2021, that the Fed is actively assessing whether it should create a central bank digital currency (CBDC), and that a paper soliciting public comment will reportedly be released soon.

On October 13, 2021, Caleb Silver, editor in chief of Investopedia and president of the Society for Advancing Business Editing and Writing (SABEW), met with Sunaya Tuteja, the Fed’s chief innovation officer, to discuss the Fed’s perspective on these new financial assets. This article summarizes key points from that conversation.

Tuteja and Silver’s conversation was part of a session at the SABEW’s virtual conference, “The Future of Work: The Changing Global Workforce and How It’s Reshaping Business.” The SABEW is headquartered at Arizona State University’s Walter Cronkite School of Journalism and Mass Communication in Phoenix, Arizona.

Key Takeaways

  • The creation of a central bank digital currency (CBDC) will need a multidisciplinary approach.
  • Before continuing, the Fed will seek opinion and expertise from a variety of stakeholders.
  • “Everything is in constant beta; there is no such thing as one and done,” Tuteja said.

About Sunaya Tuteja

Sunaya Tuteja, the Federal Reserve System’s top innovation officer, will “lead efforts to find, investigate, enable, and advocate for new technologies while creating a culture of innovation, cooperation, and experimentation.” Her appointment took effect on February 22, 2021. Prior to that, she spent “more than a decade” at TD Ameritrade, where she held positions such as “director of strategic partnerships and emerging technologies, and head of digital strategy, experience, and innovation.”

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The Development Process

Tuteja noted in her opening comments that “oftentimes, creativity is attached to technology.” She then said that there are three fundamental parts of the growth process that apply to both commercial and governmental entities.

First and foremost, “innovation begins with the nasty issue to be addressed.”

Second, you must determine “how you are going to handle those difficulties while keeping a tight focus on the demands of the consumer.”

Third, you must consider “how you want to future-proof your organization’s value offer.”

Tuteja would not speculate on the publishing date of the impending Fed report on digital currency mentioned above. She did, however, highlight that its goal is not to suggest policies or answers, but rather to “start a healthy discourse” with many interested parties. She also stressed that she is not a policymaker and that her remarks during this session reflect her personal opinions, not necessarily those of the Fed.

Questions and Answers

From then, the conversation typically followed the style of Caleb Silver asking Sunaya Tuteja questions, either his own or those supplied by other conference attendees. The majority of these discussions are described here.

Q: How far has the Fed progressed in designing a digital currency?

A: “The problem is interdisciplinary,” including a wide range of disciplines such as economics, finance, and technology. For example, the Federal Reserve Bank of Boston is collaborating on technological elements with the Massachusetts Institute of Technology (MIT).

Q: What did the El Salvador Bitcoin experiment teach us?

A: The Fed is “paying attention” to tests and research conducted by other central banks across the globe.

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Q: What is the official position on crypto at the Fed?

A: According to Fed Chair Jerome Powell, “we are seeking to scan and learn.”

Q: What are the hazards that the Fed sees in creating digital currency?

A: “Everything is in constant beta; there is no such thing as one and done… We must anticipate unforeseen outcomes, both favorable and bad, that will not be understood until after the launch… Security and privacy are major priorities… FOMO [fear of missing out] must be avoided.”

Q: How does the Fed see the mainstreaming of cryptocurrency in the financial system, as indicated by the addition of Visa and Mastercard benefits and the creation of crypto investment funds?

“As a regulating institution, it is incumbent upon us to pay attention.” Furthermore, the Fed must collaborate with other institutions that possess critical core expertise that the Fed lacks, as well as a range of viewpoints.

Q: How can the central bank take use of the finest aspects of blockchain?

A critical objective is “How do we uncover the talent in the Fed.” We must “turn to the talent closest to the client” and “build an evergreen innovation culture.”

Q: Do attitudes on cryptocurrency differ among regional Federal Reserve Banks?

“The Fed’s decentralized architecture is a strength… we’re all dealing with limited resources, but various institutions have different sorts of expertise to use,” says A.

Q: Cryptocurrency is currently a $2-3 trillion business, although it accounts for just a small portion of total financial assets. Will it become a more significant regulatory target?

A: “It already is a matter of concern and focus.”

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Q: How are you working with regulators?

A: “It should be a concerted effort,” with the business sector participating “collaboratively.”

Q: Money market funds are a safe cash option for the general people. What about the concerns that some people have concerning stablecoins and other kinds of cryptocurrency?

A: “Everyone has a different starting point… This demonstrates where we are on the maturity curve.” Moreover, “”The rate and size of adoption” has been significantly quicker than anticipated. It is fine to be cautious and to raise probing questions, but it is no longer acceptable to be uninformed “concerning these assets

Q: There are an increasing amount of commercials for cryptocurrency that include celebrities, and many individuals purchase based on the recommendations of friends. How do you intend to educate the public?

“An informed customer is a more powerful and confident consumer… we have a wealth of historical data,” says A. Furthermore, owing to “opacity” and other concerns, too many customers place a low importance on managing their funds.

Q: How do you feel about crypto mining and the environment?

A: This is already a concern in the private sector, and although it is “not a settled issue… everyone should be thinking about it and working on it.”

Q: What is your favorite new crypto term?

A: Web 3, another application of blockchain.

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