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Federal Reserve Governor Lael Brainard said on Monday "The Federal Reserve is stepping up its research and public engagement on a digital version of the U.S. dollar." Fed Chair Jerome Powell said last week the Fed will release a paper looking at how CBDCs could affect payments.

Fed Brainard Opinion

Brainard was speaking during a virtual conference organized by CoinDesk. '

The United States 'As the holder of the world's reserve currency, must be highly involved as digital payments become more common and other countries develop digital currencies that can be used to send money across borders" Brainard said.

Growing digital currency options could lead to a "fragmentation" of the payment system that poses financial risks for households and businesses, in a speech that outlined the major policy questions the Fed will need to address as it explores the potential development of a digital version of the U.S. dollar.

Fed Powell has also stressed that the Fed will move carefully with digital currencies and that congressional action may be required before the United States could develop a digital dollar. Fed officials are making it clear that the U.S. central bank aims to take an active role in developing standards as more countries research and develop central bank digital currencies. 

Brainard Reasoned why it will be important for the Fed to stay engaged.

The central bank must anticipate changing consumer trends and ensure that Americans have access to "safe central bank money," Brainard said.

She pointed out the risks posed by the development of too many privately issued stablecoins, which are digital assets linked to more traditional stores of value, such as a government-issued currency.

"If stablecoins were to be widely adopted and serve as the basis of an alternative payment system oriented around new private forms of money, there's a real risk that you could see fragmentation of the payment system," Brainard said.

"A guiding principle for any payments innovation is that it should improve upon the existing payments system," Brainard said.

“New forms of private money may introduce counterparty risk into the payments system in new ways that could lead to consumer-protection threats or, at large scale, broader financial-stability risks.,” Brainard said . “The design of any CBDC should complement and not replace currency and bank accounts.”

Cross Border Transactions

The Swiss National Bank announced last month they are to test a transfer of central bank digital currency funds. "We will try some cross-border functionality." "There will be another central bank and another currency other than the Swiss franc. " said Thomas Moser of the SNB's governing board. The test follows the research paper "How to Issue a Central Bank Digital Currency"'

"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 standards,” Brainard said. Powell also stressed that point in his remarks, saying “we expect to play a leading role in developing international standards for CBDCs, engaging actively with central banks in other jurisdictions.”

Source: Reuters

From The TradersCommunity News Desk

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