Federal Reserve Board ("FRB") Governor Lael Brainard highlighted the FRB's approach to digital currency and other technological innovation in the financial markets.
In a speech at a Federal Reserve Bank of San Francisco's program on innovation, Ms. Brainard said that new technologies present opportunities to enhance payment efficiency, expand financial inclusion, speed up settlement flows, and reduce end-user costs but come with "associated risks and possible unintended consequences."
Digital currencies - Governor Brainard underscored that digital currencies, and central bank digital currencies (CBDCs) in particular, present "risks associated with privacy, illicit activity, and financial stability." She stated that Bitcoin, stablecoins, and Libra "have raised fundamental questions about legal and regulatory safeguards, financial stability, and the role of currency in society." She highlighted "intensified calls for CBDCs to maintain the sovereign currency as the anchor of the nation's payment systems," and noted how China has moved rapidly toward developing a CBDC.
She said that the FRB is trying to better understand the potential and the implications of digital currency systems by (i) "conducting research and experimentation related to distributed ledger technologies and the potential use cases for digital currencies"; (ii) collaborating with other central banks; (iii) "bringing diverse expertise to bear" to address threats of cybersecurity, counterfeiting and fraud, and anti-money laundering; and (iv) promoting common goals to increase the ease and efficiency of cross-border transactions.
Governor Brainard said that the FRB has not made a decision on whether to undertake the significant policy process that would be required to consider the issuance of a CBDC, nor on the legal tender status of a digital currency under the Federal Reserve Act.
COVID-19 - Governor Brainard highlighted "the importance of a resilient and trusted payments infrastructure that is accessible to all Americans." Ms. Brainard reaffirmed the FRB's commitment to providing the FedNowSM Service, which allows households and small businesses access to funds immediately.
Commentary
There would be tremendous demand across the globe for a U.S. dollar central bank digital currency. Query whether the FRB should move more quickly to create a "product" that would seem very substantially to reinforce the position of the United States as the global financial center.
Alternative history: a great song that might never have been written if Bitcoin had been adopted earlier.
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