U.S. Federal Reserve Vice Chairman Lyle Brainard filed a written statement “on the benefits and risks of U.S. central bank digital currencies (CBDCs)” during a virtual hearing of the Financial Services Commission on Thursday. Considering the more than 25 lawmakers lined up to ask questions, it was a logical strategic move.
Brainard appeared before the committee after the comment period for the Fed discussion paper “Money and Payments: The Dollar in the Age of Digital Transformation.” However, recent events in the stablecoin market played a pre-emptive role in her statement.
Brainard acknowledged the place of stablecoins in the economy in her written statement. she says:
“In some future scenarios, a CBDC could coexist and complement stablecoins and commercial bank money by providing a secure central bank liability in the digital financial ecosystem, just as cash currently coexists with commercial bank money.”
During the Q&A session, Brainard spoke with Ohio’s Anthony Gonzalez about “very strong regulation, similar to banking regulation,” to ensure the stability of stablecoins.
Brainard’s written statement and Q&A covered two issues broadly: the role of banks, and whether their role in the economy would diminish even without disintermediation; coupled with the fragmentation of payment systems, and how CBDC would affect what already exists Case.
In addition to these points, some participants pressed Brainard over the statement in the discussion paper that “the Federal Reserve does not intend to continue issuing CBDC without explicit support from the Executive Branch and Congress, ideally in a specific Enabling Act.” Lawmakers want to know what non-ideal options the Fed would consider when deciding to issue a CBDC. Even the last participant, Jack Auchincross of Massachusetts, raised the question.
Chair Maxine Waters spoke about the “space race for digital assets” and the benefits Americans get from owning a currency that is accepted abroad.
Brainard suggested that limiting CBDC holdings and not offering interest on CBDC accounts would help preserve the role of credit unions in the economy and preserve the role of traditional banking.
Brainard told Gonzalez that a CBDC would help mitigate, but not prevent, the fragmentation of payment systems through interoperability by providing a settlement currency for competing private sector systems that already draw money from the banking system. Since 2017, the share of cash in the US has fallen from 31% to 20%. Additionally, Brainard told Ted Budd of North Carolina that a CBDC would have confidence in the government behind it.