The Federal Reserve System, the US central bank, has been looking into policy responses to the emergence of cryptocurrencies and digital currencies. For example, Federal Reserve Chair Jerome Powell acknowledged in his press conference following the FOMC meeting on Sept. 22, 2021 that the Fed is actively evaluating whether it should create a central bank digital currency (CBDC), and that a document inviting public feedback will be forthcoming soon.
Caleb Silver, editor in chief of Investopedia and president of the Society for Advancing Business Editing and Writing (SABEW), spoke with Sunaya Tuteja, the Fed’s chief innovation officer, on Oct. 13, 2021, about the Fed’s perspective on these new financial assets. The highlights of that discussion are presented in this article.
The conversation between Tuteja and Silver took place as part of the SABEW’s virtual conference, “The Future of Work: The Changing Global Workforce and How It’s Reshaping Business.” The SABEW is based at Arizona State University’s Walter Cronkite School of Journalism and Mass Communication in Phoenix, Arizona.
A multidisciplinary effort will be required to build a central bank digital currency (CBDC).
Before continuing, the Fed will seek opinion and expertise from a variety of stakeholders.
“Everything is in constant beta; there is no such thing as one and done,” Tuteja explained.
Sunaya Tuteja’s bio
Sunaya Tuteja will manage efforts to find, investigate, enable, and advocate for new technologies while creating a culture of innovation, collaboration, and experimentation as the Federal Reserve System’s top innovation officer. Her appointment began on February 22, 2021, and will end on February 22, 2022. Prior to that, she worked at TD Ameritrade for “more than a decade, including as director of strategic partnerships and emerging technology, and head of digital strategy, experience, and innovation.”
The Development Methodology
Tuteja admitted in her opening remarks that “oftentimes innovation becomes attached to technology.” With that as a preamble, she went on to say that there are three fundamental parts to the development process that apply to both commercial and public organizations.
“Innovation begins with the nasty problem to be solved,” says the author.
Second, you must decide “how you will tackle those difficulties while keeping a tight focus on the needs of the consumer.”
Third, you must consider “how are you planning to future-proof your organization’s value proposition?”
Tuteja would not say when the future Fed paper on digital currencies, which was mentioned earlier, will be released. She stressed, however, that the goal is to “open a meaningful discourse” with many interested parties, not to promote policies or solutions. She also stated that she is not a policymaker and that her remarks during this session reflect her own opinions rather than the Fed’s official positions.
Answers to the questions
From there, the discussion generally followed the style of Caleb Silver asking Sunaya Tuteja questions, either his own or those given by other conference attendees. The majority of these discussions are summarized below.
Q: How far has the Federal Reserve progressed in designing a digital currency?
A: “The problem is multidisciplinary,” encompassing a wide range of disciplines such as economics, finance, and technology. The Federal Reserve Bank of Boston, for example, is collaborating on technical issues with the Massachusetts Institute of Technology (MIT).
Q: What lessons have been learned from the Bitcoin experience in El Salvador?
A: The Federal Reserve is “paying attention,” as well as monitoring tests and studies conducted by other central banks across the world.
Q: What is the Fed’s official stance on cryptocurrency?
“We are looking to scan and learn,” said Fed Chair Jerome Powell.
Q: What are the hazards that the Federal Reserve sees in launching a digital currency?
A : “Everything is in constant beta; there is no such thing as one and done… We must be aware that there will be unanticipated good and negative outcomes that will not be understood until after the launch… Security and privacy are high on the priority list… FOMO [fear of missing out] must be avoided.”
Q: How does the Fed see crypto becoming more mainstream in the financial industry, as indicated by its inclusion in Visa and Mastercard loyalty programs and the emergence of crypto investment funds?
“It behooves us as a regulatory institution to pay attention.” In addition, the Fed must collaborate with other institutions that possess critical core expertise that the Fed lacks, as well as a range of viewpoints.
Q: How can the central bank take advantage of blockchain’s best features?
A critical objective is “How do we uncover the talent in the Fed.” We need to “look to the talent closest to the client” and “build an evergreen innovation culture.”
Q: Do the regional Federal Reserve Banks have different perspectives on cryptocurrency?
“The Fed’s decentralized framework is a strength… we’re all working with finite resources, but various banks have different types of expertise to draw on,” says A.
Q: Cryptocurrency is already a $2-3 trillion business, but it only accounts for a small percentage of all financial assets. Will it become a more important regulatory target?
A: “It’s already a source of concern and attention.”
Q: How do you collaborate with regulators?
A: “It should be a concerted effort,” with “collaborative input” from the commercial sector.
Q: Money market funds are a cash alternative that does not cause public concern. What about the different concerns that people have concerning stablecoins and other types of cryptocurrency?
A : “Everyone has a different starting point… This demonstrates where we are on the maturity scale.” Furthermore, “”The rate and scope of adoption” has been significantly faster than anticipated. It’s fine to be cautious, and it’s healthy to raise tough questions, but ignorance is no longer acceptable “regarding these assets
Q: Crypto ads involving celebrities are becoming more common, and many individuals buy on the advice of friends. What are your plans for public education?
“An informed consumer is a more empowered and confident consumer… we have a wealth of previous data,” says A. Furthermore, due to “opacity” and other concerns, too many customers place a low importance on managing their funds.
Q: How do you feel about cryptocurrency mining and the environment?
A: This is already a hot problem in the private sector, and while it is “not a settled issue,” “everyone should be thinking about and solving it.”
Q: Do you have a favorite new crypto term?
A: Web 3, which is yet another blockchain application.