Get ready for a fundamental shift in money and payments, John Williams, president and CEO of the Federal Reserve Bank of New York, told central bank officials, academics and financial sector leaders around the world on Wednesday. Williams delivered the keynote address at a workshop on monetary policy implementation organized by the New York Fed and Columbia University.
The central banker dismissed much of the digital asset space with a one-sentence observation; Not all cryptocurrencies are backed by non-crypto assets. Central bank digital currencies (CBDCs) and stablecoins backed by liquid and safe assets have potential for innovation, he continued.
Williams did not delve into the possible future impact of the digital currency. Instead, he contextualized the potential changes by pointing to the effects of the introduction of overnight reverse repurchase agreements (ON RRPs) in 2014. With $2 trillion of ON RRP deals remaining, they have dramatically altered the structure of the Fed’s balance sheet.
An ON RRP is an arrangement whereby a Federal Reserve bank will sell a security to an eligible financial institution and repurchase it the next day in order to keep the fed funds rate within a target range. The destabilization of 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 stressed. He said:
“As central bankers, it is critical that we remain focused on carrying out our responsibilities, while keeping pace with the world around us.”
The introduction of a US CBDC has been the subject of much debate and controversy within the government. The Federal Reserve has repeatedly stated that the ideal would be to have a mandate from Congress before issuing one.
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