At an event hosted by the Bank of France on Tuesday, Federal Reserve Chairman Jerome Powell declared that a central bank digital currency (CBDC) in the United States “would not be anonymous.”
The chairman’s remarks were in response to a query from the audience about whether CBDCs will emulate the anonymity that many cryptocurrencies offer. While the Fed has not yet decided whether to move forward with a CBDC, it has been actively debating what it might include and its potential advantages and disadvantages.
Powell explains four features that a CBDC must possess
According to Powell, a successful CBDC must have the following four features: identity verification, privacy protection, interoperability, and mediation. He noted that in order to do this, it would be necessary to strike a “balance” between identity verification and privacy protection, which is already done in the existing conventional banking system.
Cryptocurrencies like Bitcoin can be viewed as “anonymous” in some aspects because the protocol does not record user identities when they interact with the network. But because its transactional ledger is accessible to the general public, it lacks privacy.
Powell stated that even so, in order for the Fed to implement a CBDC, parliamentary approval is still required. Many Republican congress members, notably Tom Emmer and Ted Cruz, have expressed resistance to its issuance.
Christine Lagarde, the head of the European Central Bank (ECB), shared her opinions on the subject during the discussion on Tuesday, describing Bitcoin as a “highly speculative asset” with no long-term prospects. However, she warned that if central banks don’t push forward with CBDC development, they run the risk of falling behind:
“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 the study done by the ECB on choosing the best cross-border payment method where it found CBDC a better choice over Bitcoin.