The Committee on Payments and Market Infrastructures conference was held in Basel, Switzerland. One of the main guests was the Chairman of the U.S. Federal Reserve, Jerome Powell. Referring to a report created by the institution he chairs and other banking institutions, Powell said:
A recent report from the Bank for International Settlements (BIS) and a group of seven central banks, which includes the Fed, assessed the feasibility of CBDCs in helping central banks deliver their public policy objectives.
In 2020, the G-20 called on the Financial Stability Board to construct a roadmap to “improve cross-border payments”. Thus, Powell explained, the financial system can dismantle existing obstacles for users and become independent of outdated technologies.
Based on the report, Fed Chairman Powell believes that central bank digital currencies (CBDC) must be leveraged alongside traditional payment methods, like cash. Powell also asked to create a “flexible system” which enables said coexistence.
That way, institutions can meet the consumer demand for a digitized settlement system. He added:
The Covid crisis has brought into even sharper focus the need to address the limitations of our current arrangements for cross-border payments. And as this conference amply demonstrates, despite the challenges of this last year, we still have been able to make important progress.
CBDCs will reduce costs in traditional payment system
As a goal, the roadmap called for by the G-20 proposed to create a “low-cost, transparent and inclusive” ecosystem for cross-border payments. To improve the system, the FSB has outlined 19 key steps that will modify it, while assessing and implementing new technologies.
With a seamless operation, enhanced data security, and payment integrity, Powell expects the “FEDnow” system to be the backbone of such an ecosystem. Fed chairman revealed that the new system has a tentative launch date of late 2023 or 2024. Powell added:
The Fed is also doing its part to examine the role of new technologies. Experiments with central bank digital currencies are being conducted at the board of governors. As well as complementary efforts like the Federal Reserve Bank of Boston in collaboration with researchers at MIT.
The Federal Reserve Chairman emphasized the private sector’s ability to improve the “outreach” of consumers to the financial system. In emerging economy countries, Powell said, the digitization of financial services could be the key to including the unbanked. Powell concluded:
Improving the financial system is a collaborative effort.