According to John Williams, president and CEO of the Federal Reserve, fundamental change in the way we exchange currency is coming. Williams delivered this thought during the opening remarks at an invitation-only workshop on monetary policy implementation that was co-hosted by the New York Fed and Colombia University.
Williams dismissed much of the digital asset industry with expressing that not all cryptocurrencies are backed by non-crypto assets. Central bank digital currencies (CBDCs)and stablecoins backed by safe, liquid assets can hold potential for creation and innovation, he said.
The central banker did not speak much on the potential future impact of digital assets. Rather, he contextualized the possible changes by addressing the effects of the introduction of overnight reverse repurchase (ON RRP) agreements in 2014. $2 trillion of ON RRP is being held and the company has dramatically altered the structure of the Fed’s balance sheet.
An ON RRP is an agreement that a Federal Reserve bank will sell a security to an eligible financial institution and buy it back the next day for the purpose of keeping the federal fund rate within a target range. Destabilizing interest rates is one of the potential effects of the introduction of a CBDC.
The role of the central bank remains the same, regardless of technological changes, Williams emphasized. He said:
“As central bankers, it’s critical that we remain focused on carrying out our responsibilities, while keeping pace with the world around us.”
The introduction of a U.S. CBDC has been the topic of much discussion and controversy within the government. The Fed has repeatedly stated that ideally, it would have a congressional mandate before issuing one.