Fed vice chair inclined toward the coexistence of a CBDC and stablecoins in future

  • Leal Brainard floated a potential future of coexistence of stablecoins and CBDC
  • She said that UST’s recent de-peg calls for a robust regulatory framework

It has been just over four weeks since the Senate approved Biden’s nominated pick for Federal Reserve vice-chair Leal Brainard. Following her confirmation Leal Brainard, who sits alongside chair Jerome Powell in regulating monetary policy, last Thursday gave her opinion on CBDCs and stable coins. In an appearance before the House Committee on Financial Services, the economist explored the various risks and potential benefits of a central bank digital currency (CBDC) and stable coins.

Coexistence is an option 

Brainard defined that in the coming days, money will potentially coexist in a fragmented payment system in the US. She said that a CBDC could serve alongside commercial bank money and stablecoins in the same way that today’s cash coexists with bank money.

“In some future circumstances, CBDC could coexist with and be complementary to stablecoins and commercial bank money by providing a safe central bank liability in the digital financial ecosystem, much like cash currently coexists with commercial bank money,” she suggested.

The talk on stablecoins definitely couldn’t evade a mention of the public disintegration of Terra’s UST stable.

The Fed exec noted that the capitulation is a sign of why a robust regulatory framework couldn’t come any sooner so as to ensure investor and consumer protection in this space. This would enhance financial stability and provide a level playing field for competition.

“The recent turmoil in crypto financial markets makes clear that the actions we take now—whether on the regulatory framework or a digital dollar—should be robust to the future evolution of the financial system,” said Brainard.

While Brainard suggests coexistence, the Fed is not of one mind on crypto tokens, including a government-backed digital currency – CBDC. However, she believes that such is vital to have this conversation as the most significant risk is ‘not trying’ with the ongoing rapid evolution of the crypto finance space. 

A CBDC for global payments

Brainard also pointed out that a CBDC could provide a platform for global payments and position the US as the model in the digital finance sector. Relying on the strength and safety of a US currency, a CBDC would assure accessibility, security, privacy, and interoperability.

“A US CBDC may be one potential way to ensure that people around the world who use the dollar can continue to rely on the strength and safety of the US currency to transact and conduct business in the digital financial system,” she said.

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