Fed’s Brainard Mentions Use-Cases for a US CBDC

While so far, the US Federal Reserve doesn’t know whether it will issue its own central bank digital currency (CBDC), Lael Brainard, Federal Reserve Board Governor, on Friday highlighted several reasons to start developing such a digital currency.

Brainard made such comments when delivering a speech at the U.S Monetary Policy Forum in New York.

The executive mentioned that a US CBDC can boost financial stability. She noted that the dollar is very dominant in international payments Payments One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl Read this Term. Therefore, she highlighted that the US has to launch a CBDC. However, she warned that if they don’t, then they would lose access to a safe government-backed settlement Settlement Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Settlement in finance refers to the process when a buyer makes payment and receives the agreed-upon services or goods. The term is used on exchanges such as New York Stock Exchange (NYSE) when security changes hands. When the asset is transferred and placed in the new buyer's name, it is considered settled. This process could take a few hours or several days after a trade is made. It depends on the clearance process. In the United States, the settlement date for marketable stocks is usually 2 Read this Term asset, which is of course what the currency has always provided. In other words, Brainard admitted that U.S. CBDC can play an important role to ensure that the U.S. dollar maintains its prominence around international markets.

"It is essential that policymakers, including the Federal Reserve, plan for the future of the payment system and consider the full range of possible options to bring forward the potential benefits of new technologies while safeguarding stability. A U.S. CBDC may be one potential way to ensure that people around the world who use the dollar can continue to rely on the strength and safety of U.S. currency to transact and conduct business in the digital financial system," Brainard said.

Fed policymakers are still divided on the need for a CBDC, a time when several other central banks across the world continue with plans to launch their national digital currencies.

Brainard has emerged as a supporter of the CBDC launch. She emphasized the need to consider the potential impact of a U.S. CBDC, instead of mere claims to adopt it.

"It is important to consider how new forms of crypto-assets and digital money may affect the Federal Reserve’s responsibilities to maintain financial stability, a safe and efficient payment system, household and business access to safe central bank money, and maximum employment and price stability," she elaborated.

Exploring Digital Currencies

Despite the US dollar’s dominance in the global markets, the nation lagged in its CBDC efforts. China is leading in the CBDC race, while Japan and the UK are working in the digital fiat space.

Although the US Federal Reserve discussed digital dollars a few times, it is a private body that is launching the pilots. However, it is not sure how the US government will take the results of the study.

Fed policymakers appear to hold one common agreement that the Fed will not launch a CBDC without clear support from the White House and Congress.