Banking News

U.S. needs a CBDC, says Fed Governor Lael Brainard

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Talking on Friday at the Aspen Institute Economic Strategy Group Federal Reserve Governor Lael Brainard spoke strongly in favor of a U.S. central bank digital currency (CBDC). According to a Reuters report, she cited the progress made by other countries as a key reason for the U.S to advance its research into a digital dollar.

“If you have the other major jurisdictions in the world with a digital currency, a CBDC offering, and the U.S doesn’t have one, I just, I can’t wrap my head around that,” said Brainard. “That just doesn’t sound like a sustainable future to me.”

Last week there was a Congressional hearing about a digital dollar, with its use in cross border payments featuring heavily. Congressman Patrick McHenry (Republican) made his concerns clear. “If we don’t move as Americans, international settlements, remittances, could go to a regime that we’d not like,” said McHenry.

The United States’ hesitation is perhaps symptomatic of the sentiment of a portion of its population. Last week, a survey published by the Estonian blockchain company Guardtime reported that U.S. citizens were less enthusiastic about a CBDC. Almost 20% of U.S. respondents said they would never use a digital dollar, a significantly higher figure compared to the nine other countries polled. However, 58% of Americans said they’d adopt a CBDC within a year.

Brainard also addressed concerns over another form of competition, namely that of stablecoins. As a privately issued currency, stablecoins are only as good as the governance and the assets backing them.

Brainard raised concerns that one or two stablecoins could become dominant. She warned of the impact on households and businesses. “They would simply lose access to a safe government backed settlement asset, which is of course what currency has always provided,” said Brainard.

Domestically speaking, a CBDC could also help strengthen financial inclusion by streamlining government aid issuance and making access to digital cash easier.

The Fed is currently in the process of conducting a public survey on the potential benefits and drawbacks of a CBDC. It plans to publish a discussion paper in early September.

Meanwhile, other countries have been stepping up their explorations of potential CBDCs, with several European countries involved in tests. Estonia recently shared its results, and the Governor of the Central Bank of Ireland shared his thoughts on the promise of a CBDC.


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