The beginning of a significant crypto storm for central banks; Federal Reserve analysis

June 3, 2022

By Sharan Kaur Phillora

The beginning of a significant crypto storm for central banks; Federal Reserve analysis

A New York Fed symposium this week exposed the puzzle central bankers face as they grapple with emerging digital technologies ranging from new ways of processing payments to new asset categories such as cryptocurrencies and stablecoins.

Here’s what we know:

The benefits can be seen in the underlying technology, including quicker transaction speed, lower cost, and easier access to banking services, even during recent downturns and volatility.

According to the Bank for International Settlements, banks that suffer deposits would have to compete for new ones, and “depending on the intensity…the general level of short-term interest rates…may rise” as a result.

The Fed is debating whether to develop a digital currency, like most central banks worldwide. No decision has been made, and officials say congressional approval would be needed to move forward.

The point of tension may seem far away as the market value of cryptocurrencies and stablecoins remains a small portion of the financial system. But payment processors, like PayPal and Apple Pay, are growing rapidly and earlier this year were handling transactions on the scale of major credit card companies.

The implications of central bank digital currencies for monetary policy are just one part of a broader look from institutions like the Federal Reserve into how emerging technologies will change the financial system.

As those technologies have become more prominent, the implications for financial stability and the risks they pose to individual investors have become a higher priority for research and regulation.

About the author

Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.

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