Federal Reserve Vice Chair Lael Brainard will tell lawmakers Thursday that the U.S. central bank digital currency could exist alongside stablecoins (cryptocurrencies with values tied to other currencies or financial instruments) as crypto-assets and digital currencies developed by other countries increase in popularity, the Wall Street Journal reports.
“In some future circumstances, CBDC [central bank digital currency] 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 is expected to tell members of the House Financial Services Committee, according to prepared testimony released by the Fed.
A digital dollar, she added, 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 U.S. currency to transact and conduct business in the digital financial system,” she said in her prepared testimony.
Stablecoins, since they are usually pegged to a fiat currency, such as the dollar, are designed to be protected from the wild volatility that makes it difficult to use digital assets for payments or as a store of value. They currently have a market cap of around $170 billion.
But an unexpected collapse in the fourth-largest stablecoin, TerraUSD, which broke from its 1:1 dollar peg, has brought the asset class under renewed attention.
Brainard last year slammed stablecoins and called for a new focus on digital dollars.
The threat of the increased use of stablecoins, she said, may create “network externalities associated with achieving scale in payments. There is a risk that the widespread use of private monies for consumer payments could fragment parts of the U.S. payment system in ways that impose burdens and raise costs for households and businesses.”
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