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"As
we assess the future digital financial system, it is prudent to
consider how to preserve ready public access to safe central
bank money, perhaps through the digital analogue of the Federal
Reserve's issuance of physical currency," Brainard said in
testimony released in advance of her appearance on the issue
before the U.S. House of Representatives Financial Services
Committee on Thursday.
"We recognize there are risks of not acting, just as there are
risks of acting," she said.
Fed policymakers remain divided on the need for a central bank
digital currency (CBDC) and have just finished a three-month
public consultation period soliciting feedback on the idea. The
Fed has also indicated it would not launch one without clear
support from the White House and lawmakers.
That puts it behind its other major global central bank peers,
including the ECB, Bank of Japan and Bank of England, on the
process of possible adoption. China is currently piloting its
own CBDC and in total nine countries have launched one and
another 87 countries are exploring the option, according to the
Atlantic Council.
The risks of loosely-regulated cryptocurrencies and stablecoins,
which exploded in value during the COVID-19 pandemic, have come
into sharp focus with the crypto market slumping sharply this
month after the downfall of major "stablecoin" terraUSD. Leading
cryptocurrency Bitcoin has dropped more than 50% since November.
"These events underscore the need for clear regulatory
guardrails to provide consumer and investor protection, protect
financial stability, and ensure a level playing field for
competition and innovation across the financial system,"
Brainard said.
Unlike cryptocurrencies, which are typically run by private
actors, a CBDC would be issued and backed by the central bank.
If the U.S. goes ahead with creating one, Brainard said, it
ought to be designed so that commercial banks, given their
centrality to the financial system, are not disintermediated, by
for instance limiting the amount an individual could hold or
transfer.
Brainard also argued a U.S. CBDC could safeguard the dollar's
global importance.
Other Fed policymakers, including Fed Governor Christopher
Waller, are more skeptical and point out that many dollar
transactions are already digital, and have also raised privacy
concerns.
(Reporting by Lindsay Dunsmuir and Ann Saphir; Editing by
Richard Pullin)
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