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The Federal Reserve Governor has encouraged the US to be at the forefront of improving CBDC in order to keep the US dollar as a global reserve currency.
The Fed’s governor has proposed that the United States must be at the forefront of creating a central bank-issued digital currency, or CBDC, in order to strengthen the dollar’s status as a global reserve currency.
In a May 24 announcement, Federal Reserve Governor Lael Brainard said that leading CBDC ventures could have a “significant effect” on the global financial environment, encouraging the United States to play a leadership role in the burgeoning CBDC ecosystem:
“Given the potential for CBDCs to gain prominence in cross-border payments and the reserve currency role of the dollar, it is vital for the United States to be at the table in the development of cross-border standard.”
The announcement notes The Fed is “sharpening its focus” on four key areas of CBDC development — “the growing role of digital private money, the migration to digital payments, plans for the use of foreign CBDCs in cross-border payments, and concerns about financial exclusion.”
The Governor outlined some of the potential benefits of establishing a CBDC, claiming that the covid-19 pandemic had “accelerated the migration to digital payments” among U.S. households and noting that it took “weeks” to distribute prepaid debit cards as relief to households that did not have up-to-date bank information filed with the Internal Revenue Service.
“We must explore—and try to anticipate—the extent to which households’ and businesses’ needs and preferences may migrate further to digital payments over time,” she added.
Brainard also highlighted the dangers associated with the universal acceptance of private stablecoins, implying that a CBDC could have the utilities and benefits associated with current USD stable tokens without compromising the government’s power over monetary policy.
“Unlike central bank fiat currencies, stablecoins do not have legal tender status[,] there is a risk that the widespread use of private monies for consumer payments could fragment parts of the U.S. payment system in ways that impose burdens and raise costs for households and businesses,” she said.
“It is critical to be clear in any assessment of a CBDC about what benefits a CBDC would offer over and above current and emerging payment options, what costs and risks a CBDC might entail, and how it might affect broader policy objectives.”
On May 20, Federal Reserve Chairman Jerome Powell reported that the Fed would compile a paper addressing the advantages and dangers of CBDC, adding that “as the use of stablecoins grows, so must our attention to the appropriate regulatory and oversight framework.”