Is the FED Agreeing to Coexist with Stablecoins?
2022.05.27 19:31
Is the FED Agreeing to Coexist with Stablecoins?
- Federal Reserve Vice President Lael Brainard has stated that a future U.S. digital dollar could operate alongside stablecoins.
- During a session with legislators in Washington, the official spoke about the importance of considering the issuance of a CBDC to preserve the dominance of the dollar in global trade.
Despite the recent crisis unleashed upon the market by TerraUSD, the United States Federal Reserve appears to be softening its stance on stablecoins, according to statements by the body’s vice president, Lael Brainard, on Thursday.
The official went on record to say that private stablecoins could one day coexist alongside a digital dollar, as a central bank digital currencies (CBDCs) could help to secure global payment systems.
During a meeting with lawmakers in Washington, Brainard underlined the important of the administration considering how the possible presence or absence of a U.S. CBDC in the market would affect the use of the dollar in global payments.
“In some future circumstances, CBDC could coexist with and be complementary to stablecoins and commercial bank money by providing a safe central bank liability in the digital financial ecosystem, much like cash currently coexists with commercial bank money,” Brainard said.
The Risk of Fragmentation in the Payment System
In her comments, the Fed representative highlighted the “explosive growth” of the emerging digital financial system. She also specified that if the use of private cryptocurrencies, including stablecoins, becomes more widespread, the U.S. payment system currently in place could become fragmented.
The House Financial Services Committee invited Brainard to testify about the collapse of the TerraUSD stablecoin, which dragged the cryptocurrency market down with it, raising deep concerns in Congress and the White House.
Brainard’s four-year appointment as deputy chairman of the U.S. central bank was confirmed last month by the Senate.
“The recent turmoil in crypto financial markets makes clear that the actions we take now—whether on the regulatory framework or a digital dollar—should be robust to the future evolution of the financial system,” the official warned.
A CBDC Guarantees the Use of the Dollar Throughout the World
In January, the Fed published a comprehensive report on the benefits and risks of issuing a U.S. digital dollar, without taking a position on whether or not to do so.
In her prepared remarks, Brainard suggested consideration of how issuing or non-issuing of a U.S. CDDC would affect the use of the dollar in the global payment system, given the currency’s current dominance in international trade.
“A U.S. CBDC may be one potential way to ensure that people around the world who use the dollar can continue to rely on the strength and safety of the US currency to transact and conduct business in the digital financial system,” Brainard emphasized.
On the Flipside
- After the upheaval generated by the Terra-Luna ecosystem disaster, U.S. crypto firms have stepped up lobbying efforts in Washington to prevent lawmakers and the government from cracking down too hard on stablecoins across the board.
Why You Should Care
- Lael Brainard has made it clear that what is at stake over the issuance of a CBDC is the very future of the dollar as the leading currency in the international payment system.
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