Bloomberg News reports that Vice Chair of Federal Reserve Lael Brainard stated that growth in new digital assets. The recent pressure has signaled the need for improved regulatory guardrails around the same instruments.
New regulations needed for crypto
Brainard also said in a testimony that was prepared for a House Financial Services Committee on Thursday that the recent turbulence in the crypto-financial markets make it clear that the actions that will be taken now, irrespective of whether it is a regulatory framework or digital dollar, must be robust to the future evolution related to the financial system.
She indirectly indicated the recent breaking down of the algorithmic stable coin Terra USD and dipping of Tether’s below the intended one-to-one peg to the dollar, revealing that these events usually underscore the requirement for clear regulatory guardrails.
In January, the Fed issued a discussion paper related to the central bank’s digital currency, calling it the “first step” with the stakeholders in public discussion. The Fed made no commitments to issue any digital dollar, although Brainard’s earlier comments on the topic indicate views such a measure as strategically crucial for the United States to both have a right to express their views related to global standards and assurance of the status of the dollar as anchor currency in the international payment system.
Bloomberg News reports that Brainard says in the future states where the other vital foreign currencies are issued in the name of CBDC form, it is wise to consider how the potential presence or absence of the US central bank digital dollar might affect the use of the dollar in the global payment arena. She also said that US CBDC is perhaps one possible way to make sure that people across the globe who have been using the dollar can continue to depend on the safety and strength of the US currency to carry out the transaction and conduct business in the financial system which is essentially digital.
Brainard also stated that the Fed must be careful about the risk that a digital dollar must replace some bank liabilities in the financial system.
Bloomberg News reports that accordingly if the Federal Reserve moved forward on CBDC, it would be vital to develop design features that might mitigate risks like offering a non-interest bearing CBDC or limiting the amount of CBDC that a consumer can transfer or hold.
