The central bank of the United States, the Federal Reserve System, has explored policy responses to the rise of cryptocurrencies and digital currencies. For example, in his press conference after the FOMC meeting that ended on September 22, 2021, Federal Reserve Chairman Jerome Powell acknowledged that the Fed is actively evaluating whether it should create a bank digital currency. (CBDC) and a document soliciting the public. comment would be posted soon.??
On October 13, 2021, Caleb Silver, Editor-in-Chief of Investopedia and President of the Society for Advancing Business Editing and Writing (SABEW), discussed the Fed’s position on these new financial assets with Sunaya Tuteja, Director of the innovation at the Fed. This article presents the highlights of that discussion.
The dialogue between Tuteja and Silver consisted of a session in a virtual conference hosted by SABEW, “The Future of Work: The Changing Global Workforce and How it is Reshaping Business”. SABEW is based at the Walter Cronkite School of Journalism and Mass Communication at Arizona State University in Phoenix, Arizona.
Key points to remember
- The development of a central bank digital currency (CBDC) will be a multidisciplinary effort.
- The Fed will seek input and expertise from several constituencies before proceeding.
- “Everything is in perpetual beta; it’s gone and it’s done,” Tuteja said.
About Sunaya Tuteja
As the Federal Reserve’s Director of Innovation, Sunaya Tuteja fulfills “a new role in which she will lead efforts to identify, research, activate and champion new technologies while fostering a culture of innovation, collaboration and experimentation “. Her appointment was effective February 22, 2021. Prior to that, she spent “over a decade working at TD Ameritrade [that] notably as head of strategic partnerships and emerging technologies, and responsible for digital strategy, experience and innovation. “
The development process
In his introductory remarks, Tuteja acknowledged that “often innovation is linked to technology”. With this preface, she went on to state that there are three key elements of the development process, applicable to both private and public institutions.
First, “innovation begins with the thorny problem to be solved”.
Second, you need to decide “how you are going to solve these problems by focusing on the needs of the customer”.
Third, you need to pay close attention to “how do you plan to sustain your organization’s value proposition”.
As for the Fed’s upcoming digital currencies document referenced above, Tuteja would not give a clue as to its release date. However, she stressed that her aim is not to come up with policies or solutions, but to “unlock a productive dialogue” with various interested groups. She also stressed that she is not a decision maker and that her comments during this session represent her own views and not necessarily the official views of the Fed.
Questions and answers
From that point on, the discussion generally followed the format of Caleb Silver asking Sunaya Tuteja questions – his own or those submitted by other conference attendees. Most of these exchanges are summarized below.
Q: How far is the Fed in developing a digital currency?
A: “The issue is multidisciplinary”, touching on a variety of fields, including economics, finance and technology. For example, the Federal Reserve Bank of Boston works with the Massachusetts Institute of Technology (MIT) on technical aspects.
Q: What have we learned from the Bitcoin experience in El Salvador?
A: The Fed is “paying attention” and also monitoring the experiences and studies of other central banks around the world.
Q: What is the official position on crypto at the Fed?
A: Fed Chairman Jerome Powell has said that “we are looking to digitize and learn”.
Q: What risks does the Fed see in issuing a digital currency?
A: “Everything is in perpetual beta; there are no more and it is done … We must know that there will be unintended consequences, both positive and negative, which will not be known until after the launch … confidentiality are very important … We must avoid the FOMO [fear of missing out]. ”
Q: How does the Fed view the integration of crypto into the financial sector, as evidenced by its introduction to Visa and Mastercard rewards, and the development of crypto investment funds?
A: “As a regulator, it’s up to us to be careful. In addition, the Fed must work with other organizations that have key skills it lacks, as well as a diversity of perspectives.
Q: How can the central bank use the best features of blockchain?
A: “How to unlock the talents of the Fed” is a key imperative. We must “seek out the talents closest to the customer” and “create a culture of permanent innovation”.
Q: Do views on crypto vary from one Federal Reserve bank to another?
A: “The Fed’s decentralized framework is a strength… we all work with limited resources, but different banks have different kinds of expertise to tap into. ”
Q: Crypto is already a $ 2-3 trillion market, but a fraction of all financial assets. Will it be a bigger target for regulation?
A: “This is already a matter of concern and concentration. ”
Q: How do you work with regulators?
A: “It should be a coordinated effort” with the private sector also provided “in a collaborative manner”.
Q: Money market funds are an alternative to cash that does not cause public concern. What about the concerns that various people have about stablecoins and other forms of crypto?
A: “Everyone is on a different benchmark… this is proof of our position on the maturity curve. In addition, “the pace and scale of adoption” has been much faster than expected. “It’s okay to be skeptical, it’s okay to ask tough questions, but it’s no longer okay to be ignorant” about these strengths.
Q: There are more and more celebrity crypto ads, and a lot of people are buying on referrals from friends. How do you plan to educate the public?
A: “An educated consumer is a more empowered and confident consumer… we have a treasure trove of historical data. In addition, managing their finances is too low a priority for too many consumers due to “opacity” and other issues.
Q: How do you feel about crypto mining and the environment?
A: It is already a subject in the private sector and “not a solved problem … but everyone should think about it and solve it”.
Q: What’s your new favorite crypto term?
A: Web 3, another blockchain application.