19/02/2022
In her speech at the 2022 U.S. Monetary Policy Forum, Gov. 𝐋𝐚𝐞𝐥 𝐁𝐫𝐚𝐢𝐧𝐚𝐫𝐝, nominated Vice Chair of the Federal Reserve, confirms what already set out in the Fed paper about CBDCs,
High points here:
𝙏𝙝𝙚 𝙀𝙫𝙤𝙡𝙫𝙞𝙣𝙜 𝘿𝙞𝙜𝙞𝙩𝙖𝙡𝙞𝙯𝙖𝙩𝙞𝙤𝙣 𝙖𝙣𝙙 𝘿𝙚𝙘𝙚𝙣𝙩𝙧𝙖𝙡𝙞𝙯𝙖𝙩𝙞𝙤𝙣 𝙤𝙛 𝙁𝙞𝙣𝙖𝙣𝙘𝙚
■ In the future, some issuers envision that stablecoins will ... be commonly used for everyday transactions, both domestic and cross-border. So it is important to have strong frameworks for the quality and sufficiency of reserves and risk management and governance.
■ As noted in a recent report on stablecoins by the President's Working Group on Financial Markets, it is important to guard against run risk, ...
■ It is also important to address settlement risk, whereby funds settlement is not certain and final when expected, and systemic risk, whereby the failure or distress of a stablecoin provider could adversely affect the broader financial system.
𝙋𝙧𝙚𝙥𝙖𝙧𝙞𝙣𝙜 𝙛𝙤𝙧 𝙩𝙝𝙚 𝙋𝙖𝙮𝙢𝙚𝙣𝙩 𝙎𝙮𝙨𝙩𝙚𝙢 𝙤𝙛 𝙩𝙝𝙚 𝙁𝙪𝙩𝙪𝙧𝙚
■ The Board recently issued a discussion paper that outlines the Federal Reserve's current thinking on the four CBDC design principles:
① 𝐩𝐫𝐢𝐯𝐚𝐜𝐲-𝐩𝐫𝐨𝐭𝐞𝐜𝐭𝐞𝐝, so consumer data and privacy are safeguarded;
② 𝐢𝐧𝐭𝐞𝐫𝐦𝐞𝐝𝐢𝐚𝐭𝐞𝐝, such that financial intermediaries rather than the Federal Reserve interface directly with consumers;
③ 𝐰𝐢𝐝𝐞𝐥𝐲 𝐭𝐫𝐚𝐧𝐬𝐟𝐞𝐫𝐚𝐛𝐥𝐞, so the payment system is not fragmented;
④ 𝐢𝐝𝐞𝐧𝐭𝐢𝐭𝐲-𝐯𝐞𝐫𝐢𝐟𝐢𝐞𝐝, so law enforcement can continue to combat money laundering and funding of terrorism.
𝙁𝙞𝙣𝙖𝙣𝙘𝙞𝙖𝙡 𝙎𝙩𝙖𝙗𝙞𝙡𝙞𝙩𝙮
■ If current trends continue, the stablecoin market in the future could come to be dominated by just one or two issuers. There could be large shifts in desired holdings between these stablecoins and deposits, that could prove disruptive to financial stability. ...
■ In such a future state, the coexistence of CBDC alongside stablecoins and commercial bank money could prove complementary, much like cash currently coexists with commercial bank money.
𝙄𝙣𝙩𝙚𝙧𝙣𝙖𝙩𝙞𝙤𝙣𝙖𝙡 𝘾𝙤𝙣𝙨𝙞𝙙𝙚𝙧𝙖𝙩𝙞𝙤𝙣𝙨
■ Decisions by other major jurisdictions to issue CBDCs may prove more or less disruptive and that could influence the potential risks and benefits of a U.S. CBDC.
■ The substantial early progress on the digital yuan may have implications for the evolution of cross-border payments and payment systems.
■ A U.S. CBDC 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 U.S. currency to transact and conduct business in the digital financial system.
The financial system is undergoing fast-moving changes associated with digitalization and decentralization. Some of these innovations hold considerable promise
