On May 31, John Williams, President and CEO of the Federal Reserve Bank of New York, warned central bank officials, financial sector experts and academicians from around the world to be prepared for the fundamental revolution in the money and payments sector. The NY Fed teamed up with Columbia University to co-hosted an invitation-only workshop on monetary policy implementation. NY Fed President Williams gave the opening comments rejecting most of the digital asset market, stating that not all cryptocurrencies are backed by non-crypto assets. However, he emphasised that central bank digital currencies (CBDCs) and stablecoins backed by secure, liquid assets have the potential to be innovative in the future.
Williams remarked that the central bank’s job will remain unchanged despite technological innovations. He remarked:
“As central bankers, it’s critical that we remain focused on carrying out our responsibilities, while keeping pace with the world around us.”
Williams did not go into detail on the potential impact of digital currency in the future. Rather, he put the anticipated changes in context by pointing to the implications of the 2014 implementation of overnight reverse repurchase (ON RRP) agreements. The Fed’s balance sheet structure has been drastically transformed as a result of the $2 trillion in ON RRP agreements that have been maintained.
The ON RRP is an agreement between the Federal Reserve Bank of New York and a qualified financial institution to sell an asset one day and buy it back the next day in order to keep the federal funds rate within a certain range. One of the potential consequences of the adoption of a CBDC is the destabilisation of interest rates.
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