US Federal Reserve Vice Chair Lael Brainard delivered a written statement ahead of the Financial Services Committee’s virtual hearing on the benefits and risks of a US central bank digital currency (CBDC) that took place on Thursday. It was a wise strategic move considering that more than 25 lawmakers lined up to ask questions.
Brainard’s appearance before the committee came just after the comment period for the Fed’s discussion paper closed. “Money and Payments: The US Dollar in the Age of Digital Transformation.” However, recent developments in the stablecoin market played a preemptive role in the framework of his statement.
Brainard acknowledged the position of stablecoins in the economy, saying in his written statement. She said:
“In some future circumstances, CBDC could coexist and be complementary to stablecoins and commercial bank money, providing a secure central bank liability in the digital financial ecosystem, in the same way that cash currently coexists with commercial bank money. commercial banks”.
In the question and answer session, Brainard spoke in a conversation with Ohio’s Anthony Gonzalez of “very strong bank-like regulation” to ensure the stability of stablecoins.
Two issues were touched upon extensively in Brainard’s written statement and Q&A: the role of banks, and whether their role in the economy will diminish even without disintermediation, in addition to the fragmentation of the payment system, and how a CBDC would affect the situation as it already exists.
In addition to these points, Brainard was pressed by several of the participants over the discussion paper’s assertion that “the Federal Reserve has no intention of proceeding with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of an authorizing act.” specific”. Lawmakers wanted to know what non-ideal options the Federal Reserve would consider when deciding to issue a CBDC. The question was even raised by the last participant, Jake Auchincloss of Massachusetts.
President Maxine Waters spoke of a “digital asset space race” and the benefits Americans receive from having currency accepted abroad.
Brainard suggested that limiting CBDC holdings and not offering interest on CBDC accounts could help preserve credit unions’ place in the economy and maintain the role of traditional banking.
A CBDC would help alleviate, but not prevent, payment system fragmentation through interoperability, providing a settlement currency for competing private-sector systems that are already pulling money out of the banking system, Brainard told González.. Since 2017, the proportion of cash in the United States has decreased from 31% to 20%. Furthermore, a CBDC would have full confidence in the government behind it, Brainard told North Carolina’s Ted Budd.
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