(ATF) China's rapid development of a heavily controlled digital yuan is not a model for Washington to emulate, Federal Reserve chair Jay Powell said on Wednesday, adding that the US would pursue its own research at its own pace.
Powell, said the Fed's primary goal is not speed but avoiding any calamitous missteps in executing digitalisation of the dollar. "It is far more important to get it right than it is to do it fast," Powell said.
He cited concerns over government monitoring in China that would not be permitted or accepted in the US. "It's one that really allows the government to see every payment for which it is used in real time."
The US central bank is taking its time to understand the capabilities that are possible with digital currencies, Powell said.
Some critics say Washington is worried that a digital currency backed by a large economy such as China poses a threat to the greenback's supremacy.
“There is the challenge to the US dollar as the sole real global reserve currency as China looks to replace the US dollar in its trade relationships with the outside world through the digital yuan," Steen Jakobsen, chief economist at Saxo Bank, said.
"A successful rollout could be the most momentous change to the global monetary system since the Bretton Woods system was created,” he added, referring to the 1944 agreement that established a global system of payments based on the dollar.
Stephen Chiu, Bloomberg Intelligence FX and rates strategist, said a successful rollout of the digital yuan would make it more likely that Hong Kong's dollar would be pegged against the Chinese currency instead of the US dollar.
The digital yuan could account for 15% of total consumption payments in 10 years, Goldman Sachs has forecast.
But Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto, said the digital yuan "will essentially have no anonymity and will be strictly under the control of the state. It's a very different financial system and a very different set of objectives that the Fed is seeking to achieve here."
Powell made it clear that the Fed cannot move forward on developing a digital currency without congressional action.
The Boston regional arm of the Fed is researching what a central bank digital currency would look like in a joint programme with the Digital Currency Initiative at Massachusetts Institute of Technology.
China, in contrast, is already running pilot programmes to test out its digital currency
The digital yuan is one of several measures aimed to boost consumption, Yue Su, principal economist at The Economist Intelligence Unit, said.
"Handing out more digital yuan to residents in certain cities is likely to be introduced from the third quarter of 2021, as the country celebrates the 100th anniversary of the founding of the Communist Party of China," she said.
The dollar accounted for nearly 60% of the world's official foreign exchange reserves at the end of 2020, according to the International Monetary Fund, while China's share is just 2.25%.
With reporting by Reuters