The CBDC could help maintain the stability of the financial system

The United States is lagging behind in the deployment of CBDCs, while 87 countries around the world are currently exploring CBDCs. Many countries have rolled out or plan to release their own CBDCS. According to the Atlantic Council, China is already piloting the digital Yaun.

Cash payments in the United States have fallen by 31% to 20% in the past five years, and people under 45 are more affected. Therefore, Chairman Brainard says the country needs to “examine how to preserve easy public access to save central bank money.” for the future digital financial system.

The digital dollar is the solution found for this, as adoption of the digital asset grows rapidly and CBDCs could also co-exist and complement crypto, she believed.

“In certain future circumstances, CBDC could co-exist and be complementary to stablecoins and commercial bank money by providing secure central bank accountability in the digital financial ecosystem, just as cash currently co-exists with commercial bank money.

Federal Reserve Vice Chair Lael Brainard believes that the US central bank digital currency (CBDC) would contribute to the stability of the US financial system through which the country could be prepared for the future. She commented before appearing before the US House of Representatives Financial Services Committee on May 26.

She quoted: “The rapid and continued evolution of the digital financial system domestically and internationally should lead us to ask the question not as if there is a need for a digital dollar issued by the central bank today. , but rather that there may be conditions in the future which could give rise to such a need. we recognize that there are risks in not acting, just as there are risks in acting.

The CBDC, establishment of the digital dollar, could further replace the currency of commercial banks and reduce the total deposits in the banking system. CBDCs would be the most preferable option for people in times of stress.

To address these risks, she suggests offering a non-interest-bearing CBDC or limiting the amount one can hold or transfer on the CBDC. In fact, the CBDC is simply not intended for US citizens, says Brainard, the country’s government must also emphasize international payment systems.

“In future states where other major foreign currencies are issued in CBDC form, it is prudent to consider how the absence or potential presence of a US central bank digital dollar could affect the use of the dollar in global payments.

While the risks associated with virtual currencies have been brought to light after the Terra LUNA fiasco. Bitcoin price has fallen 28% in the past 30 days as TerraUSD’s loss of peg to the dollar and the value of sister token LUNA are virtually nil.

Thus, Brainard is concerned with CBDC transactions ensuring privacy, accessibility, interoperability, and security. She says the United States needs to set the standards for CBDC transactions.

She said: “These events underscore the need for clear regulatory safeguards to ensure consumer and investor protection, safeguard financial stability, and ensure a level playing field for competition and innovation across the financial system.”

President Biden released the Executive Decree in March and gave “greater urgency” to researching the designs, risks, and need for a CBDC. When it comes to CBDC privacy, Fed policymakers are widely divided in their opinion on the need for a digital dollar, and Fed Governor Christopher Waller remained skeptical of the CBDC privacy issue.

On top of that, the US central bank has also suspended the launch of the CBDC unless it gets clear and full support from the White House and lawmakers.

In a summary of the Federal Reserve’s public comment solicitation of comments and feedback on CBDC issues revealed the summary of the comment saying “will be released soon.”

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Don F. Davis