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3 min read

Fed Vice Chair Calls for Stablecoin Regulation, But Says They Can Coexist With CBDCs

By News Desk

Lael Brainard, the newly appointed Vice Chair of the US Federal Reserve, says there’s a need for stablecoin regulation and believes they can coexist with a government-backed counterparty.

In prepared remarks for a testimony to the Committee on Financial Services in Washington, Brainard alluded to the recent TerraUSD (UST) debacle that wiped out over $50 billion in wealth, and used it as an example of why comprehensive regulation should exist for stablecoins.

“There has been explosive growth in an emergent digital financial system built around new digital assets and facilitated by crypto-asset platforms and stablecoins as settlement assets,” she said. “Two widely used stablecoins have come under considerable pressure. One widely used algorithmic stablecoin declined to a small fraction of its purported value, and the stablecoin that is the most traded crypto asset by volume temporarily dipped below its purported one-to-one valuation with the dollar.”

Facade,On,The,Federal,Reserve,Building,In,Washington,Dc

Image via Shutterstock

According to Brainard, these events highlight the need for “clear regulator guardrails to provide consumer and investor protection, protect financial stability, and ensure a level playing field for competition and innovation across the financial system.”

The Fed official said that currently, there may not be an immediate need for a CBDC, but that in the future, there could be conditions that “may give rise to such a need.”

“We recognize there are risks of not acting, just as there are risks of acting.”

Brainard suggested that if stablecoins and other cryptocurrencies – what she refers to as “private monies” – rise to prominence and become widespread, there may be a fragmentation of the US payment system into “so-called walled gardens.”

If and when private money does rise to prominence, Brainard hinted that it could coexist with CBDCs, and the two asset classes could ultimately complement each other.

In a way, cryptocurrencies in some nations are already complimenting CBDCs as governments enter a race to digitize their money system. In Norway, Norges Bank has already rolled out a CBDC pilot that runs on an Ethereum layer-2 protocol called Nahmii, stating:

“We are planning further development projects based on the same technology. The technology will be particularly relevant for collaboration with alliance partners (including banks) and as a basis for a sandbox. The plan is for the prototype infrastructure to be made available as open source code – hopefully during the summer of 2022. This will facilitate alliance partners and the public to participate more broadly in the testing.”

Newsletter Inline

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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