Brainard Calls Digital Dollar a 'Natural Evolution' of Payment System

Source: American Banker

A central bank digital currency could play a key role in protecting financial stability, Federal Reserve Board Vice Chair Lael Brainard said in a speech Friday morning.

In remarks delivered at a Bank of England conference in London, Brainard said a CBDC could be a settlement layer that connects a system of regulated stablecoins to one another and to public money. 

“Given the foundational role of fiat currency, there may be an advantage for future financial stability to having a digital native form of safe central bank money — a central bank digital currency,” Brainard said in remarks delivered at the conference. “A digital native form of safe central bank money could enhance stability by providing the neutral trusted settlement layer in the future crypto financial system.”

Brainard warned that stablecoins, which she described as “the digital native asset that bridges from the crypto financial system to fiat,” are already becoming highly concentrated, with three coins accounting for 90% of transactions and two issuers holding an 80% market share. Should this trend continue, she argued, it risks the creation of a private, unregulated payment system.

The comments were the strongest endorsement a Fed official has given to the idea of a digital U.S. dollar to date. While the central bank has studied CBDCs, Fed Chair Jerome Powell has maintained a neutral stance on the topic of implementation, noting that the decision ultimately belonged to Congress.