Federal Reserve Vice Chair Lael Brainard told lawmakers on Thursday that a US dollar and stable coins could someday operate together.
Brainard said in prepared remarks that the central bank liability in the digital financial system could be similar to that of cash. A central bank issues a digital banknote.
There has been an explosion of growth in the digital financial system, and if private money in the form of stable coins or cryptocurrencies were to become widespread, there could be a separation of the US payment system into so-called walled areas. The House Financial Services Committee heard testimony from Brainard, who won Senate confirmation for a four-year term as the central bank's vice chair.
In recent days, investors watched the collapse of the stablecoin terraUSD and its sister coin luna, which were popular in the financial markets. Terra lost its peg to the US dollar and the market&s turbulence spread to stable coin, sending it briefly below its $1 peg before it regained parity.
Terra supporters voted on Thursday to approve Do Kwon's plan for a new luna coin, without reviving the failed terraUSD.
The recent turmoil in the financial markets makes it clear that the actions we take now, whether on the regulatory framework or a digital dollar, should be robust to the future evolution of the financial system.
In January, the Federal Reserve published a report on the benefits and risks of fully digitizing the US dollar.
The US dollar is the most widely used currency in international payments and investments, and Brainard said US officials should consider how the potential absence or presence of a USCBDC could affect the usage of the dollar in global payments.
She said that a USCBDC may be one way to ensure that people around the world who use the dollar can continue to rely on the strength and safety of the US currency to transact and conduct business in the digital financial system.
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