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WASHINGTON – On Thursday, Federal Reserve Chair Jerome Powell testified before the Senate Committee on Banking, Housing, and Urban Affairs, where he discussed the semiannual Monetary Policy Report. As required by the Federal Reserve Act, the report is submitted to Congress every six months, in addition to providing testimony from the Federal Reserve Board Chair before the Senate Banking Committee.

On October 24, 2023, federal bank regulatory agencies jointly finalized principles to provide framework for the safe and sound management of exposures to climate-related financial risk for the largest financial institutions, those with $100 billion or more in total assets. During the hearing, U.S. Senator Kevin Cramer (R-ND) first asked Powell whether it is appropriate or necessary for financial regulators like the Federal Reserve, Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC), to weigh in on public policy matters especially as it relates to climate risk. 

“In October, the [Federal Reserve], the OCC, and FDIC issued climate guidance for management of covered institutions,” said Cramer. “I'm just kind of curious, did Congress somewhere along the line give the Fed authority over climate policy as well, or is that another one of those things that somebody just took on? And I realize you're not the dictator of the Fed—only the chairman of the Fed—but I would be interested in, as the chairman, your views on it.”

“No, our assignment is the safety and soundness of banks, and if they understand and can manage the risks that they face. That’s our assignment. We said in climate world we would do two and only two things. One of them was to do illustrative scenarios, climate scenarios. The banks are already doing this. The large banks who are subject, they're already doing it because they're doing business internationally, and they don't have any choice. So, we thought we'd do that,” said Powell. “We also said that we'd offer guidance, not on level of climate risk or anything like that, just on what you had to do to be in a position to assess, and that's it for my thinking. […] There are no new initiatives. We're not going to change our capital requirements to reflect climate risk or anything like that. I'm really determined that we are not a climate policymaker, and that is really the business of elected officials.”

Through an Executive Order issued in 2022, the Biden administration encouraged the Federal Reserve to continue central bank digital currencies (CBDC) research, experimentation, and evaluation to assess the benefits and risks of creating a digital dollar. Senator Cramer, a cosponsor of the Central Bank Digital Currency Anti-Surveillance State Act, asked Powell about the implications of the administration encouraging the Federal Reserve to pursue CBDC, despite never receiving Congressional approval.

“There are a lot of people that get confused about what is meant by the administration's admonition to continue researching, experimenting, looking at some sort of central bank digital currency. […] Could you maybe differentiate a little bit what people think of in terms of a Bitcoin or their held digital currencies versus what a central bank digital currency, who, in my view, should emulate cash, right? It still should be about the dollar, not about some different kind of currency. Could you just sort of help people back home better understand why they shouldn't be quite so frightened?” asked Cramer.

Powell said they are nowhere near recommending, let alone adopting a central bank digital currency in any form. However, he said as technology has evolved over time, money has become digitized.

“If you look at your bank account, people don't hold those physical dollars. They're digital. The thought was that the government could create a digital form of money that people could then transfer among themselves. Now, of course, that raises a concern that if that were a government account, that the government would see all your transactions, and that's just something we would not stand for or do or propose here in the United States. That is how it works in China for example,” explained Powell.

“If we were to ever to do something like this, and we're a very long way from even thinking about it, we would do this through the banking system. The last thing we, at the Federal Reserve would want, would be to have individual accounts for all Americans or any Americans for that matter. […] It's just really a question of following technology as it evolves, and in a way that serves the public better. People don't need to worry about a central bank digital currency, and nothing like that is remotely close to happening anytime soon,” Powell concluded.

Earlier today, Senator Cramer joined Maria Bartiromo on Fox Business to preview Powell’s testimony. Watch it here.