Federal Reserve Governor, Lael Brainard, says the adoption of private monies like stablecoins could "fragment parts" of the US payment system. In a speech to a conference by CoinDesk, Brainard also said that global adoption of stablecoins may pose a threat to financial stability due to their volatility.
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"A predominance of private monies may introduce consumer protection and financial stability risks because of their potential volatility and the risk of run-like behavior," she said.
Moreover, Brainard emphasized the importance for the United States to be "at the table in the development of cross-border standards" for central bank digital currencies (CBDC).
"Given the potential for CBDCs to gain prominence in cross-border payments and the reserve currency role of the dollar, it is vital for the United States to be at the table in the development of cross-border standards."
Brainard also said that a digital dollar would be a "new type of central bank money" issued in digital form. A CBDC would reduce counterparty risk and the associated consumer protection and financial stability risks, Brainard highlighted.
Brainard's comments come after the Fed announced it is going to reveal this summer a discussion paper on the possibility of issuing a US CBDC. The Fed Chair, Jerome Powell, said that the key focus so far is on whether and how a CBDC could improve on an already "safe, effective, dynamic, and efficient US domestic payments system." He also said that CBDC could serve as a complement to, and "not a replacement of," fiat money.
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