Crypto: Federal Reserve backs need for digital dollar (CBDC)

© Reuters – Lael Brainard, Vice Chair of the Federal Reserve, believes that a US central bank digital currency (CBDC) could help keep the financial system stable and prepare the country for the future.

“The ongoing rapid evolution of the digital financial system domestically and internationally should lead us to frame the question not of whether it is necessary to have a digital dollar issued by a central bank today, but rather s “There may be conditions in the future that may give rise to such a need. We recognize that there are risks in not acting, just as there are risks in acting.”

Cryptos are on the rise

Cryptocurrency adoption is growing, and Ms. Brainard believes CBDCs could co-exist and complement cryptocurrencies. But their introduction carries risks. The digital dollar could substitute for commercial bank currency and reduce total deposits in the banking system. People might also prefer CBDCs during times of stress. To mitigate these risks, Brainard suggests offering interest-free CBDC or limiting the amount of CBDC one can hold or transfer.

Ms. Brainard believes that the government must also take into account the evolution of the international payments system. The presence of a digital dollar could allow the United States to ensure that users of dollars can transact. Additionally, Ms. Brainard said it was essential that the United States take a leadership role in setting the standards governing CBDC transactions to ensure privacy, accessibility, interoperability and security.

“In future states where other major foreign currencies are issued as CBDCs, it is prudent to consider how the absence or potential presence of a U.S. central bank digital dollar might affect the use of the dollar in global payments.”

The United States remains behind in this area compared to many countries that have already deployed or are considering issuing their own CBDCs. Indeed, China is working on digital while 87 other countries are currently exploring CBDCs.

Protection against new risks

Furthermore, the risks associated with cryptocurrencies and stablecoins have been brought to light since the fiasco of and . The loss of TerraUSD (UST) peg to the dollar and the subsequent drop in value of LUNA to virtually zero at the start of the month impacted the entire cryptocurrency market.

“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.”

Although President Biden’s executive order in March placed ‘greatest urgency’ on researching the designs, risks and need for a CBDC, Fed policymakers remain widely divided on the need for a dollar. digital. For example, Fed Governor Christopher Waller remains skeptical of CBDCs and has expressed privacy concerns.

The US central bank has also indicated that it will not launch a CBDC without clear support from the White House and lawmakers.

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