Federal Reserve Chairman Jerome Powell said that a central bank digital currency (CBDC) in the US would “not be anonymous” during an event hosted by the Bank of France on Tuesday.
He described the key properties that would underpin a CBDC if implemented – one of which includes being “identity verified.”
Private, But Not Anonymous
The chairman’s comments were in response to an audience question about the anonymity of many cryptocurrencies, and whether CBDCs would mimic this property.
While the Fed is yet to make any decisions on whether to proceed with a CBDC, it has been actively discussing what one might look like, and its potential risks and benefits.
Powell said that a CBDC would be guaranteed to have four characteristics: Intermediation, privacy protection, interoperability, and identity verification.
“It would not be anonymous,” he clarified. “It would not be an anonymous bearer instrument.”
Powell added that this would require finding a “balance” between privacy protection and identity verification, which is already done in today’s traditional banking system.
“Privacy” refers to the ability to have others unable to observe one’s actions. By contrast, anonymity means one’s actions are observable, but nobody knows who is behind them.
In some ways, cryptocurrencies like Bitcoin can be considered “anonymous” because the protocol does not collect identifying information from users interacting with the network. However, it lacks privacy because its ledger of transactions is publicly transparent.
Powell said that the Fed will nevertheless need approval from Congress if it ever seeks to roll out a CBDC. Numerous congressional Republicans including Tom Emmer and Ted Cruz have signaled opposition to its issuance.
Crypto Assets, Not Currencies
Tuesday’s event was attended by a wide array of central bankers and monetary authorities around the world and was focused on discussing the role of crypto technology and decentralized finance in the economy.
French central bank chief François Villeroy de Galhau was amused by an audience member’s characterization of digital assets as “cryptocurrencies.”
“You used the word ‘cryptocurrencies’, which is the best way to stimulate the five central bankers who are here,” he joked. Earlier during the presentation, he emphasized that such items “are not currencies,” but rather “crypto assets.”
Christine Lagarde – Chief of the European Central Bank (ECB) – has express Similar views on the topic, believing Bitcoin to be a “highly speculative asset” with no future.
However, during Tuesday’s discussion, Lagarde suggested that central banks risk becoming irrelevant if they don’t pursue development on CBDCs.
“If we are not involved in experimenting and innovating in terms of digital central bank money, we risk losing the role of ‘[monetary] anchor’ that we have played for many many decades.”
Lagarde echoed predictions From Fed vice chair Lael Brainard in May, suggesting that the rise of private market currencies could usher in a return to the “free banking” of the 19th century. “That precipitated crisis after crisis,” Lagarde argued.
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