KEY POINTS

  • Fed Chairman Jerome Powell said the U.S. must get CBDCs right the first time rather than be the first to release it
  • The U.S. dollar's status as the global reserve currency makes the Fed cautious about CBDCs
  • Bitcoin, a decentralized and global cryptocurrency, made strides Monday following Powell's comments

Bitcoin successfully broke out of the $11,500 range and is approaching $12,000 following new comments from Federal Reserve Chair Jerome Powell about the possibility of a central bank digital currency (CBDC) in the U.S.

Bitcoin jumped from $11,519 to $11,837 before closing at $11,764 on Monday, which helped the benchmark cryptocurrency buck the trend of moving in tandem with the U.S. stock market, Bloomberg reported. The publication noted that the S&P 500 has dropped following the latest reports on a new government spending bill.

With this new price behavior, Bitcoin has inched closer to the $12,000 resistance, a key level that analysts said could put Bitcoin into new 2020 highs once it is broken.

In a virtual panel hosted by the International Monetary Fund (IMF) Monday that focused on cross-border payments, Powell mentioned that the Fed is currently evaluating the cost and benefits of CBDCs. However, the agency has not decided whether or not it will issue a U.S. CBDC. 

CBDC is a type of electronic money that is backed directly by central bank reserves instead of reserves from a bank account. Cryptocurrency enthusiasts believe the IMF panel and the comments from Powell pushed Bitcoin’s movement yesterday.

Powell said the subject of CBDCs is one of those issues where it is more important for the U.S. to get it right the first time than be the first one to release it.

“Getting it right means we not only look at potential benefits of a CBDC, but also the potential risks,” he said, citing counterfeiting and cyberattacks issues.

Observers said the panel discussion, which also featured Agustin Carstens, the general manager of the Bank of International Settlements (BIS), the central bank of all central banks, made it clear which countries are lagging behind or at the forefront of the development of CBDCs. 

The chairman noted that the Fed must be cautious in developing the CBDC because the U.S. dollar is also a global reserve currency, used worldwide by other central banks and foreign companies.

This statement had struck a chord to those in the cryptocurrency landscape.

“Many on social media were quick to point out that a truly global and decentralized digital currency already exists,” said Quantum Economics founder Mati Greenspan in a statement to Forbes, referring to Bitcoin, which is both decentralized and global.

Federal Reserve Chair Jerome Powell warns of the perils of insufficient support to the US economy Federal Reserve Chair Jerome Powell warns of the perils of insufficient support to the US economy Photo: POOL / Stefani Reynolds