On Thursday, a senior Federal Reserve official issued a stern warning to House lawmakers: If the central bank takes too long to issue a digital currency, the dollar’s worldwide supremacy may be jeopardized.
“If we don’t act quickly, there is a risk that the dollar’s role as the world’s reserve currency will come to an end,” said Lael Brainard, a member of the U.S. central bank’s board of governors.
Brainard informed members of Congress that the Fed was developing its own digital currency that would be backed by dollars kept at its New York bank. She said that the Fed plans to produce its own version within two years.
At a congressional hearing on central bank digital currencies, Lael Brainard, the Fed’s vice chair, stated, “We shouldn’t take the dollar’s worldwide standing as the leading payment currency for granted” (CBDCs).
“If we don’t act quickly, there is a risk that the dollar’s role as the world’s reserve currency will come to an end”
Lael Brainard
“If major foreign jurisdictions move to the issuance of their own digital currencies, it’s important to think about whether the United States would continue to have the same kind of dominance without also issuing.”
“I would hate for Congress to decide five years from now: ‘You, Federal Reserve, you need to catch up. China’s out there. The European Central Bank is out there.'”
After the high-profile demise of privately-issued stablecoin TerraUSD, the argument over whether the United States needs its own digital currency produced and backed by the U.S. government, much like dollar notes, was rekindled.
‘China’s out there. The European Central Bank is out there.’
Lael Brainard
The Federal Reserve has concluded a period of public comment on its much-anticipated study outlining the advantages and disadvantages of building its own CBDC. The report was widely expected. Stablecoins, which try to connect their value to a fiat currency, have grown in popularity at the same time, much like the U.S. dollar.
It was Brainard’s first appearance before Congress in her new role as vice-chair of the Federal Reserve. In spite of the Fed’s division on the necessity for a CBDC, Brainard has emerged as someone who sees a case for such an institution as well.
Image: “Lael Brainard – World Economic Forum Annual Meeting 2012” by World Economic Forum is licensed under CC BY-NC-SA 2.0.
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