The emergence of cryptocurrencies — and particularly stablecoins — has raised important questions for central banks and other authorities, including on the appropriate regulatory framework. In the United States, the regulatory framework for cryptocurrencies is not straightforward. Our current framework is based largely on whether a cryptocurrency is deemed to be a security or has associated derivative financial products and whether the participating institutions have a supervisory agency overseeing their activities. Unlike many other jurisdictions, regulators do not have plenary authority over retail payments in the United States.
Moreover, the regulatory challenges are likely to be inherently cross-border in nature. Because stablecoins and other cryptocurrencies are unlikely to be bound by physical borders, regulatory actions in one jurisdiction are unlikely to be fully effective without coordinated action elsewhere.
The prospect of global stablecoin payment systems has intensified the interest in central bank digital currencies (CBDC). Central bank digital currency typically refers to a new type of central bank liability that could be held directly by households and businesses without the involvement of a commercial bank intermediary.
Proponents argue that central bank digital currencies would be a safer alternative to privately issued stablecoins because they would be a direct liability of the central bank. A more relevant question may be whether some intermediate solutions may be able to offer the safety and benefits of real-time digital payments based on sovereign currencies without necessitating radical transformation of the financial system.
In the United States, there are important advantages associated with current arrangements. Physical cash in circulation for the US dollar continues to rise due to robust demand, and the dollar plays an important role as a reserve currency globally. Moreover, we have a robust and diverse banking system that provides important services along with a widely available and expanding variety of digital payment options that build on the existing institutional framework with its important safeguards.
Circumstances where the central bank issues digital currency directly to consumer accounts for general-purpose use would raise profound legal, policy, and operational questions. That said, it is important to study whether we can do more to provide safer, less expensive, faster, or otherwise more efficient payments. Some jurisdictions are likely to move in this direction faster than others, based on the particular attributes of their payments and currency systems. At the Federal Reserve, we look forward to collaborating with other jurisdictions as we continue to analyze the potential benefits and costs of central bank digital currencies.