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Transcript of Chair Powell's
Message on Developments

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in the U.S. Payments System
May 20, 2021 CHAIR POWELL.

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Today we are in the midst of
a technological revolution

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that is fundamentally
changing our world:

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reshaping how we
communicate, access information,

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and purchase goods and services.

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As the central bank
of the United States,

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the Federal Reserve is
charged with promoting monetary

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and financial stability and
the safety and efficiency

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of the payment system.

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In pursuit of these
core functions,

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we have been carefully
monitoring and adapting

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to the technological innovations
now transforming the world

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of payments, finance,
and banking.

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The effective functioning
of our economy requires

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that people have faith
and confidence not only

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in the dollar, but also in
the payment networks, banks,

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and other payment service
providers that allow money

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to flow on a daily basis.

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Our focus is on ensuring a safe
and efficient payment system

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that provides broad benefits
to American households

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and businesses while also
embracing innovation.

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In the Fed's early
days, the development

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of dedicated telegraph wires
facilitated the transfer

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of funds between banks.

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In the 1980s, automated
clearinghouse services made it

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possible for electronic
bill payments

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to be an alternative
to paper checks.

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In 2019, the Federal
Reserve committed

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to building the FedNow
Service, which will enable banks

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to provide real-time,
or instant,

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payments to their
customers around the clock,

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365 days a year, benefiting
communities across America.

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Recently, the rise of
distributed ledger technology,

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which offers a new approach to
recording ownership of assets,

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has allowed for the
creation of a range

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of new financial products

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and services-including
cryptocurrencies.

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To date, cryptocurrencies have
not served as a convenient way

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to make payments, given,
among other factors,

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their swings in value.

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Nonetheless, coins tied
to the value of the dollar

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or another currency-known as
"stablecoins"-have emerged

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as a new way to make payments.

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These stablecoins aim to use
new technologies in a way

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that has the potential to
enhance payments efficiency,

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speed up settlement flows,

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and reduce end-user costs-but
they may also carry potential

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risks to those users and to
the broader financial system.

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For example, although the value
of a stablecoin may be tied

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to the value of a dollar,
these coins may not come

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with the same protections as
traditional means of payment,

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such as physical currency or the
deposits in your bank account.

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Therefore, as stablecoins' use
increases, so must our attention

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to the appropriate regulatory
and oversight framework.

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This includes paying attention

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to private-sector payments
innovators who are currently not

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within the traditional
regulatory arrangements applied

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to banks, investment firms, and
other financial intermediaries.

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Technological advances also
offer new possibilities

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to central banks-including
the Fed.

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In particular, technology
now enables the development

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and issuance of central bank
digital currencies, or CBDCs.

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A CBDC is a new type of
central bank liability issued

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in digital form.

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While various structures and
technologies might be used,

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a CBDC could be designed for
use by the general public.

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For the past several years,

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the Federal Reserve has been
exploring the potential benefits

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and risks of CBDCs from
a variety of angles,

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including through technological
research and experimentation.

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Our key focus is on whether
and how a CBDC could improve

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on an already safe,
effective, dynamic,

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and efficient U.S.
domestic payments system.

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We think it is important that
any potential CBDC could serve

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as a complement to, and
not a replacement of,

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cash and current private-sector
digital forms of the dollar,

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such as deposits at
commercial banks.

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The design of a CBDC would
raise important monetary policy,

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financial stability,
consumer protection, legal,

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and privacy considerations and
will require careful thought

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and analysis-including
input from the public

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and elected officials.

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To help stimulate
broad conversation,

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the Federal Reserve Board will
issue a discussion paper this

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summer outlining our current
thinking on digital payments,

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with a particular focus on the
benefits and risks associated

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with CBDC in the U.S. context.

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As part of this process, we
will ask for public comment

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on issues related to
payments, financial inclusion,

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data privacy, and
information security.

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We are committed at the Federal
Reserve to hearing a wide range

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of voices on this important
issue before making any decision

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on whether and how to move
forward with a U.S. CBDC,

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taking account of
the broader risks

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and opportunities
it could offer.

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The paper represents
the beginning

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of what will be a thoughtful
and deliberative process.

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Irrespective of the
conclusion we ultimately reach,

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we expect to play a leading role

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in developing international
standards for CBDCs,

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engaging actively with central
banks in other jurisdictions

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as well as regulators
and supervisors here

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in the United States
throughout that process.

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The Federal Reserve remains
committed to ensuring

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that the public has
access to a safe, reliable,

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and secure payments system.

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Our forthcoming paper
on the evolution

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of digital payments
is intended-along

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with our other work as
a supervisor, regulator,

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and payment system operator-to
advance the objective

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of ensuring that
the payments system

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and the economy work
for all Americans.

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We look forward to
hearing your thoughts

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on this important topic.