NY Fed’s Williams: Digital money can impact policy

New York Federal Reserve Chairman John Williams said the development of digital currency and payments technology could impact how the Fed works with monetary policy and builds its balance sheet, wrote Reuters Wednesday June 1.

Williams, speaking at a research conference, said the digitalization of finance could “have implications for markets and for our interactions with counterparties, as well as how we conduct monetary policy”, and that there would be a big question about how central banks would anticipate and adapt.

He said central banks will all need to provide cash and liquidity to help stabilize the economy, so it’s important to understand how things like digital assets could change the financial system.

This comes as a broader debate has raged over everything from stablecoins to central bank digital currencies (CBDCs). There have been whispers about the creation of a digital version of the US dollar, with the Biden administration also looking further into the broader implications of cryptocurrency and digital assets.

The collapse of the UST stablecoin has also cast a shadow over the discussion in recent weeks, leading to renewed vigor in calls for digital asset regulation.

The debate continues in other governments as well. In the UK, the government has launched a consultation that proposes an insolvency regime for digital currencies, especially stablecoins due to the incident with the UST coin.

Read more: UK Government Wants Bank of England to Regulate Risky Stablecoins

The regime would make the Bank of England, rather than the Financial Conduct Authority, the authority responsible for managing the collapse of a stablecoin important to the financial system.

The FCA will still have the power to regulate and supervise companies in the sector, but the government wants to broaden its definition of a payments system to include arrangements that facilitate or control the transfer of “digital settlement assets”, to let them regulate important payment systems. and service providers.

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