Fed’s Williams: ‘Critical’ central banks understand impact of digital currency | Investment News

NEW YORK (Reuters) – The development of digital currency and payment technologies could change how the Federal Reserve conducts monetary policy and the composition of its balance sheet, issues the central bank will have to work to understand, the Federal Reserve said on Wednesday. New York Fed President John Williams. .

Digital transformation could have implications for markets and for our interactions with counterparties, as well as how we conduct monetary policy,” Williams said in his keynote address to a research conference at the Institute. Columbia University.

“The big question is what a world of digital currencies like stablecoins and (central bank digital currencies) would mean for the implementation of monetary policy. How will central banks anticipate and adapt? ?” said Williams.

The role of central banks “will always be to provide money and liquidity to bring stability to the economy and the financial system,” he said. But “it is essential that we understand how these transformations could affect the economy and the financial system, as well as the implementation of monetary policy”.

The Fed is debating whether to create its own version of a digital currency, and President Joe Biden’s administration is embarking on a broader discussion about regulating cryptocurrencies and related technologies like stablecoins.

Whether or not the Fed creates a digital dollar, the development of a private currency network, the growth in the size of stablecoin and crypto markets, and the expansion of private payment options could have a profound impact on banks and the inherited financial system that central bank policy relies on.

(Reporting by Howard Schneider; Editing by Andrea Ricci)

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