Top Fed Official Says US Central Bank 'Actively' Debating Digital Dollar

A top Federal Reserve official said Wednesday that the U.S. central bank is "Actively looking at and debating" issuance of a digital currency, amid growing worries among current and former regulators that the dollar might be at risk of losing its status as the world's reserve currency.

"We have not at the Fed decided to pursue or drive to develop a digital currency, but it's something we're actively looking at and debating."

A former Goldman Sachs executive with the most extensive capital-markets experience among members and alternates on the Fed's key monetary-policy committee, Kaplan said the U.S. could suffer higher interest costs if a foreign government or another entity developed an alternative currency that received widespread adoption.

His comments came after former Commodity Futures Trading Commission Chair J. Christopher Giancarlo wrote in an op-ed piece that called for the U.S. to create a digital currency to avoid the risk that the dollar might lose its reserve status.

Because of the dollar's prominent role in international commerce and the dominant U.S. leadership position in global affairs over the past century, many foreign central banks, commercial banks and investors hold assets denominated in the American currency.

"It just reinforces, the dollar may not be the world's reserve currency forever, and if that changes, and you tack on 100 basis points to $20 trillion, with relatively short average life, that's a lot of money."

Fed Chair Jerome Powell and some U.S. lawmakers warned earlier this year that Facebook's plan to develop a digital currency, Libra, could instantly become so popular that it might displace the dollar and undermine the stability of the U.S. financial system.

"People around the world are working real hard to try to find alternatives to dollars and dollar infrastructure because the more they're invested in that, the more susceptible they are to sanctions, tariffs and what's going on right now."

The U.S. trade war with China has weighed on the global economy, according to the International Monetary Fund, while agreements with other large trading partners, including Mexico, Canada and European countries have been upended or back on the table to be renegotiated.

"I still think for the foreseeable future, the dollar will be the world reserve currency, we're able to refinance our debt at relatively low rates, but I don't think we should take that for granted."