Vice-Chair of the Federal Reserve Testifies in Favor of CBDC, Says It Can “Coexist” With Stablecoins
When Lael Brainard spoke before a House panel Thursday, she explained how a CBDC, or central bank digital currency, may help and harm the economy.
The U.S. Senate approved Brainard as the new vice-chair of the Federal Reserve, to be seated alongside Chair Jerome Powell, last month. As a result of the Terra (LUNA) stablecoin losing its peg, authorities are still pursuing stronger crypto punishments.
Cryptocurrency markets have been in turbulence recently, which has made evident that the measures we take today, whether on a regulatory framework or a digital dollar, should be resilient to financial system change.
As a result of Terra’s demise, she argues, “clear regulatory guardrails” are now necessary. Investors have been keeping a close eye on Deus Finance’s DEI token since the UST fiasco, when Tether (USDT) temporarily traded for less than $1 for a short period of time.
According to Brainard’s testimony, stablecoins don’t have the same level of safeguards as commercial bank money, which “might bring considerable counterparty risk into the payments system” if these protections were included.
Is it time for a CBDC in the United States?
At the Committee on Financial Services hearing, Brainard said that she thinks a U.S. CBDC might one day coexist alongside stablecoins.
If the Federal Reserve were to go forward with a CBDC, she said, it would prefer to issue a non-interest-bearing version or restrict how much a person may retain or spend. She also warned the House committee to take into account the ramifications of issuing a Central Bank Digital Currency (CBDC).
It’s possible that CBDC might cohabit and complement stablecoins and commercial bank money by offering a secure central bank liability in the digital financial environment, just the way cash presently coexists.
With regards to reducing the risks associated with the digital financial system, Brainard believes the U.S. CBDC “may be one possible approach to assure that people using dollars from all over the globe can keep trusting in the strength and safety of U.S. money.”