In remarks delivered to a research conference hosted by the Federal Reserve Board, Fed Chair Jerome Powell discussed the international role of the U.S. dollar as well as the role a central bank digital currency (CBDC) might have in the future.
Powell addressed concerns regarding the continued rapid inflation that is affecting the U.S. economy.
“My colleagues and I are acutely focused on returning inflation to our 2 percent objective,” Powell said. “Meeting our dual mandate also depends on maintaining financial stability. The Fed's commitment to both our dual mandate and financial stability encourages the international community to hold and use dollars.”
The international prominence of the U.S. dollar can add financial stability challenges, Powell contended. For that reason, the Fed has focused on the stability and usability of the dollar internationally through liquidity facilities which provide foreign central banks with the capacity to U.S. dollar funding within their jurisdictions.
Powell also addressed the role of fintech in advancing the role of the U.S. dollar globally. Most major economies already have or are in the process of developing instant 24/7 payments. The Fed is preparing to initiate its own FedNow service for use in 2023.
The adoption of a U.S. CBDC, according to Powell, would improve on an already safe and efficient domestic payments system. “As the Fed's white paper on this topic notes, a U.S. CBDC could also potentially help maintain the dollar's international standing.”
Powell emphasized the importance of considering not just what the global financial system needs now, but where it will be and what it will need in the next five to ten years.