(Kitco News) - Central bank digital currencies (CBDC) and stablecoins have been thrust into the spotlight in recent months as governments and regulators from around the world increasingly signal that the future of global payments will revolve around “digital fiat.”
The latest comments on the matter out of the U.S. came from Federal Reserve Vice Chair Lael Brainard, who said the central bank needs to explore questions related to transfer limits and interest-bearing accounts as part of the debate over whether a digital dollar is required.
These statements from Brainard came as the Fed Vice Chair was speaking at a conference hosted by the Bank Policy Institute in New York, where she stressed that a key part of the Fed’s exploration is to determine what the future of the financial system’s infrastructure will look like and whether a digital dollar would play an integral role.
Brainard expressed concerns that a CBDC could result in the Fed directly banking customers using the digital dollar, which could potentially diminish the standing of private banks in the economy.
“The central bank won't seek to crowd out private business activity in payments or otherwise,” she said.
Another area of concern highlighted by Brainard was stablecoins, saying that they are an area “with the most potential risk if not properly regulated.”
Following her cue, Fed Vice Chair for Supervision Michael Barr gave a speech at The Brookings Institue in which he emphasized that Congress needs to act on stablecoin regulation sooner, rather than later.
“I believe Congress should work expeditiously to pass much-needed legislation to bring stablecoins, particularly those designed to serve as a means of payment, inside the prudential regulatory perimeter,” Barr said in his speech. “I look forward to continued partnership with other regulatory agencies and Congress to address the risks of stablecoins.”
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Barr highlighted the potential risks to financial stability posed by stablecoins and other forms of “unregulated private money,’ noting that “History shows that in the absence of appropriate regulation, private money is subject to destabilizing runs, financial instability, and the potential for widespread economic harm.”
Because of this, “Crypto-asset related activity, both outside and inside supervised banks, requires oversight so that people are fully aware of the risks they face," Barr said.
“We plan to work with other bank regulatory agencies to ensure that crypto activity inside banks is well regulated, based on the principle of same risk, same activity, same regulation, regardless of the technology used for the activity.”
