Powell Lays Out The Key Reasons Why The Fed Is Moving Toward Digital Dollars

 

.@FederalReserve’s Powell & @BIS_org’s Carstens: To make #CrossBorderPayments successful, we need international cooperation among a wide range of parties, including private sector, central banks, @FinStbBoard and the IMF. https://t.co/EFHUv21SWz #IMFmeetings pic.twitter.com/2EhFQre4wK

— IMFLive (@IMFLive) October 19, 2020

The temptations of CBDCs are not limited to excesses in monetary policy. CBDCs also appear to be an effective mechanism for bypassing the taxation, debt issuance and spending prerogatives of government to implement a quasi-fiscal policy. Imagine, for example, the ease of enacting Modern Monetary Theory via CBDCs. With CBDCs, the central banks would possess the necessary plumbing to directly deliver a digital currency to individuals’ bank accounts, ready to be spent via debit cards.

Let me quote again from Charles I. Plosser’s warning in 2012: “Once a central bank ventures into fiscal policy, it is likely to find itself under increasing pressure from the private sector, financial markets, or the government to use its balance sheet to substitute for other fiscal decisions.” With a flick of the digital switch, CBDCs can enable policymakers to meet, or cave in to, those demands – at the risk of igniting an inflation conflagration, abandoning what little still survives of sovereign fiscal discipline and who knows what else. I hope the leaders of the world’s central banks will approach this new financial technology with extreme caution, guarding against its overuse or outright abuse. It’s hard to be optimistic. Soon our monetary Pandoras will possess their own box full of new powers, perhaps too enticing to resist.