by Maryann O. Keating, Ph.D.
In offering forward guidance, U.S. Federal Reserve (FED) officials had hoped to assure households and businesses that borrowing costs would remain stable in the near future. Meanwhile, the global economy was affected by supply shocks making any predictions misleading. Kevin Warsh, appointed Fed Chair in 2026, is a critic of forward guidance.
Warsh’s writings in 2022 and a recent speech give clues to his reluctance to promising something he cannot and does not wish to deliver. Both statements detail his position on domestic monetary policy, the reserve status of the U.S. dollar, and cryptocurrency (“Money Matters: The U.S. Dollar, Cryptocurrency, and the National Interest,” American Renewal, Ryan and Rachidi, eds. Washington: American Enterprise Institute, 2022 and In Our Time, presented at the Federal Reserve Bank of Kansas City’s Economic Policy Symposium, Jackson Hole, Wyoming, Aug. 28, 2026).
Essentially, Warsh thinks that market prices and real borrowing costs, not pronouncements, determine public confidence in whether or not the Fed is committed to maintaining the value of the dollar. The Fed’s response to government deficits and an incorrect response to cryptocurrency both represent, according to Warsh, a clear danger to the U.S. economy and the role of the U.S. dollar in international finance.
In 2022, the price level was growing at four times the Fed’s 2 percent target, and that the Fed was buying a majority of securities issued to finance the national budget deficit. Warsh says, “Wisdom is not the word for this sort of alchemy-when one part of government is the de facto long-term buyer of the national’s own debt — in all seasons for all reasons.”
High levels of national deficits, financed and held by the Fed, jeopardize not only stable prices but the role of the dollar as the dominant global reserve currency. Since World War II, the value, prevalence, and durability of the U.S. dollar have been crucial to American consumer affordability, economic growth, and national debt financing. According to Warsh, the world is better off managing its affairs around a single currency, and, therefore, he sees dollar dominance as a global public good. He indicates, however, “the foundation that underpins the dollar is showing cracks (“Money Matters,” 6).”
A key to understanding Warsh’s vision is his appreciation of the public/private system of fiat money creation in the U.S. Twice, Warsh refers to a speech by Ravi Menon, head of Singapore’s central bank. Menon states, “The credibility of money is underpinned by this two-tier monetary structure where commercial banks create money and central banks preserve its value.”
Fiscal policy and deficits are beyond the control of the Fed. Warsh admits and accepts that the primary tool of the Fed is attempting to control the short run interest rate through open market operations (the Fed buying and selling U.S. government-issued securities). He does not accept, however, a stable tradeoff between increasing interest rates to control inflation or decreasing them to stimulate production and employment. Money matters and he indicates, more than once, that he is willing to consider changes in the stock of money circulating as a significant indicator of monetary policy effectiveness.
At length, Warsh explains how cryptocurrency is creating a new geopolitical architecture. Crypto, which actually represents software not money, stores transaction on a decentralized blockchain or agreed-upon ledger-based algorithm. In this way, value can be transferred cheaply, safely and instantaneously. Currently, thousands of digital assets, created by peer-to-peer intermediaries, are masquerading as money.
Stablecoin, in reaction to the unstable value of generic bitcoin crypto, emerged; stablecoins peg the value of crypto assets to a sovereign currency like the dollar. Nevertheless, Warsh asks, “Who or what backstops the liability?”
China was the first major country to deploy a Central Bank Digital Currency (CBDC), which is called e-CNY. If foreigners want continued access to the Chinese market, they may in the future be required to use e-CNY. Within China, e-CNY is a potential means for tracking all retail and personal financial transactions. According to Warsh, e-CNY, along with similar crypto technologies, represents a clear and foreseeable risk to the global reserve status of the dollar.
U.S. existing payment systems are slow and expensive. Domestic and international firms are turning to stablecoin as an alternative. A U.S. Digital Asset Market Clarity Bill fell short on Sept. 15, 2026, of the required votes to pass a law to establish a clear regulatory framework for crypto. The GENIUS Act, previously enacted by the U.S. in 2025, initiated a comprehensive regulatory framework for stablecoins requiring licensing, anti-money laundering compliance, and oversight by federal or state regulators. Yet, Warsh expresses concern that these measures inadequately address the fact that stablecoin is becoming a proxy for the U.S. dollar. Even if Congress and the regulators were to insist on dollar-for-dollar backing for any financial intermediary issuing stablecoin and increased their capital requirements, the Fed remains the lender of last resort for U.S. commercial banks.
Warsh’s clearly does not support adopting an end-to-end Central Bank Digital Currency (CBDC), similar to the Chinese model, whereby the Fed would intermediate all payments including those serving U.S. consumers. A wholesale-to-retail CBDC would crowd out the unique role of commercial banks in the U.S. Warsh notes as well that this would be at odds with the American ethos of retail privacy. His solution is a new wholesale digital dollar to intermediate dollar payments between the U.S. government and wholesale providers of banking services. Other countries would be free to make their own monetary choices and U.S. domestic financial institutions could compete to be the most efficient providers for retail payments.
The devil, of course, is in the details, and Warsh has yet to describe how Treasury and the Fed would interact with decentralized commercial banks and their holding companies. Cryptocurrency coins have become a significant factor in facilitating wholesale and international transactions. The U.S. needs to get onboard in terms of its traditional private/public-backed banks and limit its real and perceived liability in stablecoin. The new Fed Chair has his eyes wide open about what needs to be done. Let’s hope he can get it done.
Maryann O. Keating, Ph.D., a resident of South Bend and an adjunct scholar of the Indiana Policy Review Foundation, is co-author of “Microeconomics for Public Managers,” Wiley/Blackwell.
