WASHINGTON–The United States 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, especially given that the U.S. is the holder of the world's reserve currency, one Federal Reserve governor is saying.
Arguing growing digital currency options could lead to a "fragmentation" of the payment system, which could result in financial risks for households and businesses, during remarks to a conference Federal Reserve Governor Lael Brainard identified several major policy questions the Fed will need to address as it explores the potential development of a digital version of the U.S. dollar.
"The Federal Reserve is stepping up its research and public engagement on a digital version of the US dollar," Brainard said in remarks made during a virtual conference organized by CoinDesk.
Fed Chair Echoes Remarks
Brainard hasn’t been alone in suggesting the Federal Reserve will be taking an active role in developing standards as more countries research and develop central bank digital currencies. As CUToday.info reported, Fed Chair Jerome Powell said the Fed will release a paper this summer looking at how CBDCs could affect payments. Powell has also stressed that the Fed will move carefully, and that congressional action may be required before the United States could develop a digital dollar.
During her remarks Brainard laid out the reasons why it will be important for the Fed to stay engaged as digital payments become more common. The central bank must anticipate changing consumer trends and ensure that Americans have access to "safe central bank money," Brainard said.
Potential Risks
Brainard also singled 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.