• Wed. Jun 22nd, 2022

Fed’s Brainard sees case for central bank digital currency

ByHazel R. Lang

May 25, 2022

Federal Reserve Board Governor Lael Brainard testifies before a Senate Banking Committee hearing on her nomination for Vice Chairman of the Federal Reserve, on Capitol Hill in Washington, U.S., January 13, 2022. REUTERS/Elizabeth Frantz/Files

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May 25 (Reuters) – The creation of an official digital version of the U.S. dollar could help ensure stability in the financial system as crypto-assets and digital currencies developed by other countries become increasingly popular, a Federal Reserve Vice Chairman Lael Brainard said Wednesday.

“As we assess the future digital financial system, it is prudent to consider how to preserve rapid public access to secure central bank money, perhaps through the digital analogue of the issuance of physical currency by the Federal Reserve,” Brainard said in testimony released ahead of his appearance on the matter before the U.S. House of Representatives Financial Services Committee on Thursday.

“We recognize that there are risks in not acting, just as there are risks in acting,” she said.

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Fed policymakers remain divided on the need for a central bank digital currency (CBDC) and have just completed a three-month public comment period seeking comments on the idea. The Fed also indicated that it would not launch one without clear support from the White House and lawmakers.

That puts it behind its other major global central bank peers, including the ECB, Bank of Japan and Bank of England, on the possible adoption process. China is currently piloting its own CBDC and a total of nine countries have launched one and another 87 countries are exploring the option, according to the Atlantic Council.

The risks of loosely regulated cryptocurrencies and stablecoins, whose value has skyrocketed during the COVID-19 pandemic, have been highlighted, with the crypto market crashing sharply this month after the principal fell” stablecoin” terraUSD. Major cryptocurrency Bitcoin has fallen more than 50% since November.

“These events underscore the need for clear regulatory safeguards to ensure consumer and investor protection, safeguard financial stability, and ensure a level playing field for competition and innovation across the financial system,” Brainard said. .

Unlike cryptocurrencies, which are usually managed by private players, a CBDC would be issued and backed by the central bank. If the United States decides to create one, Brainard said, it should be designed so that commercial banks, given their centrality in the financial system, are not disintermediated, for example by limiting the amount that an individual may hold or transfer.

Brainard also argued that a US CBDC could preserve the global importance of the dollar.

Other Fed policymakers, including Fed Governor Christopher Waller, are more skeptical and point out that many dollar transactions are already digital and have also raised privacy concerns.

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Reporting by Lindsay Dunsmuir and Ann Saphir; Editing by Richard Pullin

Our standards: The Thomson Reuters Trust Principles.

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