Lael Brainard, vice chair of the US Federal Reserve, believes stablecoins could be a ‘significant’ risk to the payments system.
- Fed vice chairwoman criticizes stablecoins.
- Brainard thinks crypto could fragment U.S. payments system.
- Cash payment in the US has been reduced from 31% to 20%.
The Vice-President of the Federal Reserve Lael Brainard of the United States, testifies about the stablecoins and central bank digital currencies (CBDCs) before the U.S. House Financial Services Committee. During his speech, he expresses his views on physical currency, CBDCs and stable currencies.
According to Brainard, the advantage of the physical currency currency is a medium of exchange that defines value. is that “gives the public access to safe, exchangeable central bank money without worrying about liquidity how easily a cryptocurrency can be bought and sold without impacting the overall market price. or credit risk.”
However, he also noted that the proportion of cash payments made in the U.S. was lower than in the U.S. has fallen from 31% to 20% in just five years, with an even lower percentage for the under-45 demographic.
Brainard believes this warrants consideration of how to preserve immediate public access to secure central bank money, suggesting as an idea the creation of a digital analogue of physical currency by the Federal Reserve.
In his words:
“Confidence in commercial bank money is based on deposit insurance, banks’ access to central bank liquidity, and bank regulation and supervision.”
Against the stablecoins
Brainard also criticized the idea of stable currencies ( stablecoins) for not sharing “these same protections” (from central bank money) , que “could reintroduce significant counterparty risk into the payment system.”
He reasoned that “these new forms of money may lose their promised value relative to fiat fiat currency is “legal tender” backed by a central government, such as the Federal Reserve, and with its own banking system, such as fractional reserve banking. It can take the form of physical cash, or it can be represented electronically, such as with bank credit. currency, harming consumers or, on a larger scale, creating broader risks to financial stability.”
Against private money
In addition, he believes that the extensive use of “private money, in the form of stable currencies or cryptocurrencies.” could lead to the “fragmentation of the U.S. payment system into so-called walled gardens”.
On this he detailed:
“These new forms of money may lose their promised value relative to fiat currency, harming consumers or, on a larger scale, creating broader risks to financial stability. We have seen before the risks posed by the widespread use of private monies.”
And he compared with other times:
“In the 19th century, active competition among private paper note issuers led to inefficiency, fraud, and instability in the U.S. payment system, eventually necessitating a uniform form of money backed by the national government. A predominance of private money of this type could introduce risks to consumer protection and financial stability because of its potential volatility a statistical measure of dispersion of returns, measured by using the standard deviation or variance between returns from that same security or market index. and the risk of run-like behaviour. as demonstrated on a smaller scale in recent weeks”.
About Earth yTether
“There has been explosive growth in an emerging digital digital technologies are these electronic tools that have the ability to generate, store or even process data. financial system built around new digital assets and facilitated by cryptoasset a cryptoasset is any digital asset that uses cryptographic technologies to maintain its operation as a currency or decentralized application. platforms and stable coins as settlement assets. In recent weeks, two widely used stable currencies have come under considerable pressure. A widely used algorithmic stable coin a coin can refer to a cryptocurrency that can operate independently or to a single unit of such cryptocurrency. fell to a small fraction of its assumed value, and the stable coin that is the most traded cryptoasset by volume how much cryptocurrency has been traded over a set period, such as the past 24 hours. temporarily fell below its assumed one-to-one valuation with the dollar.”
In this regard, he said:
“These events underline the need for clear regulatory barriers to provide protection for consumers and investors, protect financial stability, and ensure a level playing field for competition and innovation across the financial system. The recent turmoil in the financial cryptomarkets makes it clear that the actions we take now, whether in the regulatory framework or in a digital dollar, must be robust to the future evolution of the financial system.
In favour of CBDCs
After saying this, the vice-president of the FED expressed her support the opposite of Resistance, it is a threshold that crypto’s price doesn’t fall below. for the central bank digital currencies, CBDC. About them he said:
“In some future circumstances, CBDC could co-exist with stable currencies and commercial bank money and be complementary to them by providing a secure central bank liability in the digital financial ecosystem, just as cash cash is the most liquid form of money: physical coins and banknotes in the most narrow sense of the term. currently co-exists with commercial bank money.”
He added that it was important to weigh and mitigate the potential risks associated with CBDC itself.
“It is also important to consider the potential risks of a CBDC associated with the disintermediation of banks, given their critical role in providing credit, managing monetary policy.”
He added: “ In future states where other major foreign currencies are issued in the form of CBDC, it is prudent to consider how the possible absence or presence of a U.S. central bank digital dollar could affect the dollar’s use in global payments.”
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