Federal Reserve Governor Randal Quarles on Nov. 30 urged central banks to "tread cautiously" as they consider issuing their own digital currencies, saying it is not a good alternative for the U.S. in the near term and that encouraging innovations in the current system is preferable.
Quarles' comments at a Washington, D.C., conference came a day after New York Fed President William Dudley said the Fed has researched issuing a digital currency, given the rise of privately run digital currencies. Governor Lael Brainard has said it is an "intellectual exercise" the Fed has undertaken with other central banks.
Quarles, the Fed's vice chair for supervision, said while the Fed should continue that research, having central banks issuing a digital currency would not be smart in countries that have "highly developed banking systems and ongoing robust demand for physical cash." Those digital currencies would be at risk of cyberattacks and usage in criminal and terrorist activity, he said, which would "divert our focus" as regulators away from work on improving the existing payment systems.
The U.S., he noted, still lacks a "real-time payment system" between banks that would lead to speedy transactions and transfers for customers. But he said there are a "number of promising avenues" and innovations that the Fed will continue to work on with private institutions.
"Working cooperatively, private-sector participants and central banks can incorporate innovation that may be able to strike the right balance of improving the technical networks without adversely generating financial stability concerns," he said. "I am optimistic that the Federal Reserve's work with the payments industry will facilitate a future with a safe and more efficient payment system."
