December 4, 2022

US Fed Reserve Vice Chair Clamors for a Digital Dollar 

Talks of developing a CBDC have been a major headline in all the countries of the world. Various nations worldwide are stepping up efforts to launch a CBDC to improve the financial sector. While the likes of China have released their electronic versions, the United States still lags. 

Vice-Chairman of the US Federal Reserve Lael Brainard thinks having a digital dollar will help the country’s financial system. According to her, having a CBDC will improve the financial sector and make the country globally competitive in the emerging digital space. 

Brainard Says the United States Needs a CBDC

Ahead of her appearance before the US committee on Finance, Brainard states that the country must consider adopting a CBDC. She said the fast-evolving digital financial space at all levels should lead the US to consider asking some questions. 

“The rapid evolution should not only lead us to ask whether we need electronic money, but rather if the future needs a CBDC. Whether it’s risky to launch or not.”

Brainard then backed up her statement with a statistic. Over the last five years in the United States, cash payments declined by 11%. Those under 45 years even have a lower cash usage, thus, stressing the need for e-Dollar. 

The Vice-Chairman said it’s paramount the United States makes plans to maintain access to fiat money for the future of digital banking. Adopting the digital dollar is the only answer. 

Analysts have some doubts about whether mainstream cryptocurrencies will impact the use of the digital dollar. Brainard thinks that electronic money can co-exist with virtual currencies, fiat, and stablecoins and provide central bank liability. 

However, she said CBDCs come with their risks. They could replace fiat currency and reduce the number of deposits in the financial system. Therefore, she suggests that the amount of CBDC holdings or transfers should have a limit to address the risks. 

Brainard said digitized money isn’t only reserved for American citizens. The government also needs to think about the advancement of international payments. She said the US must be prudent in considering how the absence of a digital dollar can impact global payments. 

Adopting a Digital Dollar Will Encourage Dependency on the Currency 

Brainard thinks launching a digital dollar will allow global users to access the currency and conduct transactions seamlessly. Aside from this, the US will assume a leading role in forming guidelines for CBDC usage to improve security and accessibility. 

The dangers of transacting in virtual currencies and stablecoins have hit the headlines lately following Terra’s capitulation. LUNA’s value nosedive and UST’s de-peg affected the market completely and resulted in the loss of investors’ monies. 

Brainard said the Terra event stresses the need for improved regulatory clarity to protect consumers, financial stability, and innovation. The central bank has already revealed it will delay launching electronic money without support from Washington.