Digital Dollar Could Coexist With Stablecoins, Fed Vice Chairwoman Says

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Lael Brainard testifies to the benefits, risks of US central bank digital currency

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“It can provide a secure, central bank liability as a neutral settlement layer in the digital financial ecosystem,” she said. “It would really facilitate and enable private sector innovation.”

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His remarks come as the Fed debates a potential new form of money to keep pace with private sector payment innovations, including stablecoins, a type of cryptocurrency pegged to the dollar or another national currency. .

Unlike private cryptocurrencies such as bitcoin, a Fed-issued central bank digital currency would be issued and backed by the US central bank, a government entity, such as US paper dollar bills and coins.

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The idea has divided Fed officials, making it unlikely they will decide whether to create a digital dollar anytime soon.

Stablecoin received renewed attention from regulators this month after TeraUSD, one of the biggest stablecoins, saw its value well below a dollar.

“The recent turmoil in the crypto financial markets makes it clear that the actions we take now – whether it is on the regulatory framework or the digital dollar – must be strong for the future development of the financial system,” said Ms. Brainard.

House Financial Services Committee Chair Maxine Waters (D., Calif.) said that a central bank digital currency can ensure that the US continues to compete with other countries such as China that are considering or launching digital currencies. have been

“We should keep in mind that we may very well be competing with countries around the world to deploy digital versions of their currencies in the midst of a new digital asset space race,” said Ms. Waters. “America cannot be left behind.”

Ms Brainard echoed those comments in her written testimony, saying that a digital dollar “could be a potential way to ensure that people around the world who use dollars are able to transact and trade in US currency.” can continue to rely on the strength and security of the digital financial system.”

House Republicans signaled skepticism. Representative Patrick McHenry (R., NC) suggested that the potential losses of the US digital dollar outweigh any gains. “What specific problems, if any, will central bank digital currencies solve?” he asked Ms. Brainard.

Benefits include consumer access to secure, central bank-issued currency in a period of rapidly declining use of physical cash, Ms. Brainard said. She added that the digital dollar could also address the fragmentation of the payment system if stablecoins one day become the dominant form of digital payment.

The central bank sought public comment in January on an internal report that was designed to spark debate on whether and how a US digital dollar could improve domestic payments systems. The paper does not endorse any policy outcome, and the Fed said the release of the report was not meant to signal any impending decision.

The report comes as central banks around the world struggle with the rise of many private electronic alternatives to traditional money and weigh in on creating their own versions. Private offerings of digital currencies have been extremely volatile, and in many cases have been linked to criminal activity. They have so far failed to gain widespread adoption for daily transactions, such as buying groceries or movie tickets.

China has created its own government-issued digital currency and has banned transactions using cryptocurrencies issued by non-monetary authorities, naming bitcoin, ether and tether for example. El Salvador, meanwhile, became the first country in the world to adopt bitcoin as a national currency alongside the US dollar.

Banks and their business groups say the idea has several drawbacks in the US, among them potentially disrupting the financial system by attracting deposits from traditional commercial banks, resulting in higher credit costs for families and businesses. it occurs.

Greg Baer, ​​head of the Bank Policy Institute, an industry group, said in a writing, “Current research greatly underestimates the perceived benefits of CBDCs and instead indicates that CBDCs will seriously disrupt the financial system, causing consumers and consumers to lose money.” Businesses will suffer greatly.” statement last week.

Advocates of the idea say the Fed could make the digital dollar faster and cheaper to move money around the financial system, include those lacking bank accounts, and to distribute financial aid to the government. can provide an efficient way.

However, Fed Chairman Jerome Powell has indicated he sees reason to exercise caution. He has said that because of the important global role of the dollar, it is more important than ever to bring the digital dollar to market first.

Other officials have expressed greater skepticism about the need for a Fed digital currency. Former governor Randall Quarles, who left the Fed in December, said last summer that the US dollar was already “highly digitized” and expressed doubts that the Fed digital currency would attract people without bank accounts into the financial system or lower financial transaction costs. will help to A goal that can be accomplished through other means, he said.

Andrew Ackerman [email protected] . Feather

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