WATCH: U.S. backed digital currency could live alongside certain cryptocurrencies
A digital currency issued by the Federal Reserve could be implemented alongside stablecoins–cryptocurrencies that are intended to be pegged to a currency or commodity that is less volatile, Board of Governors Vice Chair Lael Brainard said on Thursday.
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“In some future circumstances, [Central Bank digital currency] could coexist with and be complementary to stablecoins and commercial bank money by providing a safe central bank liability in the digital financial ecosystem, much like cash currently coexists with commercial bank money,” Brainard said before a hearing of the House Finance Committee.
WATCH: Yellen calls for new regulations amid Crypto decline
Brainard noted that other countries and central banks have already begun to pilot digital currencies including in China and Europe. She said the Federal Reserve issuing a digital currency could ensure that U.S. currency was still relied on into the future.
“More broadly, it is important for the United States to play a lead role in the development of standards governing international digital finance transactions involving CBDC’s consistent with the norms of privacy, accessibility, interoperability, and security,” Brainard said.
Brainard told the committee that “recent turmoil” in crypto markets has shown that actions, such as a new regulatory framework or rolling out a “digital dollar,” must be considered.
“The rapid ongoing evolution of the digital financial system at the national and international levels should lead us to frame the question not as whether there is a need for a central-bank-issued digital dollar today, but rather whether there may be conditions in the future that may give rise to such a need,” Brainard said.
Stablecoins have been viewed as a safe harbor among cryptocurrencies. That’s because the value of many stablecoins is pegged to a government-backed currency, such as the U.S. dollar, or precious metals such as gold.
There has been a lot of talk about regulating cryptocurrencies, but little in the way of action.
Treasury Secretary Janet Yellen, responding to the volatility in the crypto markets said that the U.S. needs a regulatory framework to guard against the risks surrounding cryptocurrencies and stablecoins.
In March, Federal Reserve Chair Jerome Powell said new forms of digital money such as cryptocurrencies and stablecoins present risks to the U.S. financial system and will require new rules to protect consumers. Right before the implosion of Terra, the Fed said in its semiannual report on financial stability that stablecoins are vulnerable to “runs” that could harm owners of the coins.
Securities and Exchange Commission Chairman Gary Gensler has said that the crypto industry is “rife with fraud, scams and abuse” and that his agency needs more authority from Congress — and more funding — to regulate the market.