On May 26, Lael Brainard, the US Federal Reserve’s vice chairperson, delivered a written statement ahead of the Financial Services Committee’s virtual hearing titled “On the Benefits and Risks of a US Central Bank Digital Currency (CBDC).“ Given the large number of legislators who lined up to ask questions, this was a wise strategic approach.
The Fed’s discussion paper, “Money and Payments: The US Dollar in the Age of Digital Transformation,” when Brainard appeared before the committee. Recent occurrences in the stablecoin market, on the other hand, influenced the wording of her comments.
In a written statement, Brainard acknowledged the importance of stablecoins in the economy. She stated:
“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.”
Brainard also discussed “quite tough regulation, equivalent to bank-like regulation” to protect the stability of stablecoins with Anthony Gonzalez of Ohio. Brainard’s written comments about the role of banks and if their role in the economy will be weakened even without decentralisation:
“the fragmentation of the payment system, and how a CBDC might influence the current situation.”
Many congressmen pressed Brainard on a comment in the discussion paper that claimed “the Federal Reserve does not intend to proceed with the issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorising law.”
Lawmakers were curious about the Fed’s non-ideal alternatives when considering whether or not to issue a CBDC. Even the final contestant, Jake Auchincloss of Massachusetts, posed the question.
Chairperson Maxine Waters spoke about a “digital assets space race” and the benefits of having a globally recognised currency. According to Brainard, limiting CBDC holdings and not paying interest on CBDC accounts might help credit unions keep their position in the economy while still preserving conventional banking.
According to Brainard, a CBDC would assist minimise, but not prevent, fragmentation of the payment system by providing a settlement currency for rival private-sector systems that are currently draining money from the banking system. Since 2017, the circulation cash flow in the United States has declined from 31% to 20%. Furthermore, Brainard informed Ted Budd of North Carolina that a CBDC would have complete trust in the government’s support.
