"I
don't think we should be taking the global status of the dollar
for granted and in a world where other major jurisdictions move
to the issuance of their own digital currencies it is important
to think about whether the United States would continue have the
same type of dominance without also issuing one," she told
lawmakers in Congress.
Fed policymakers remain divided on the need for a central bank
digital currency (CBDC) and have just finished a four-month
public consultation period soliciting feedback on the idea.
Brainard has emerged as a supporter of the idea while some 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. The Fed
as a whole has indicated it would not launch one without clear
support from the White House and lawmakers.
She reiterated that no decision has been made, and acknowledged
the risks of both sides, but noted that in a world that is
rapidly digitalizing creating a digital currency could help
ensure financial system stability as crypo-assets and digital
currencies developed by other countries become increasingly
popular.
"We recognize there are risks of not acting, just as there are
risks of acting," Brainard said during a hearing on the issue
before the U.S. House of Representatives Financial Services
Committee, noting that even if it was agreed to set up one it
would take perhaps five years to put a U.S. digital dollar in
place.
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 think tank.
CRYPTO MARKETS NEED MORE REGULATION
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 told the committee.
Unlike cryptocurrencies, which are typically run by private
actors, a CBDC would be issued and backed by the central bank.
If the United States goes ahead with creating one, Brainard said
the Fed should mitigate the risk of "disintermediating banks,"
given their centrality to the financial system, by, for
instance, limiting the amount an individual could hold or
transfer.
Brainard also said her preference would be for a U.S. digital
dollar not to be interest bearing in order to prevent a
reduction of deposits elsewhere in the banking system.
(Reporting by Lindsay Dunsmuir; Editing by Aurora Ellis)
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