Digital Dollar Could Coexist With Stablecoins, Fed Vice Chairwoman Says

WASHINGTON—A U.S. central bank digital currency could one day provide consumers with a level of safety amid a proliferation of privately-issued digital assets such as stablecoins, Federal Reserve Vice Chairwoman

Lael Brainard

told House lawmakers Thursday.

Ms. Brainard told the House Financial Services Committee that in the future a central bank digital currency could coexist with and be complementary to stablecoins by providing a widely available, government-backed means of payment.

“It could provide a safe, central bank liability as the neutral settlement layer in the digital financial ecosystem,” she said. “It would actually facilitate and enable private sector innovation.”

Her remarks come as the Fed debates a potential new form of money to keep pace with private-sector payments innovations, including stablecoins, a type of cryptocurrency intended to be pegged to the dollar or another national currency.

Unlike private cryptocurrencies such as bitcoin, a Fed-issued central bank digital currency would be issued by and backed by the U.S. central bank, a government entity, as are U.S. paper dollar bills and coins.

The idea has divided Fed officials, making it unlikely they will decide soon on whether to create a digital dollar.

Stablecoins gained renewed attention from regulators this month after TerraUSD, at the time one of the largest stablecoins, saw its value fall far below a dollar.

“The recent turmoil in crypto financial markets makes 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,” Ms. Brainard said.

House Financial Services Committee Chairwoman

Maxine Waters

(D., Calif.) said a central bank digital currency could ensure the U.S. continues to compete with other countries such as China that are considering or have launched digital currencies.

“We must keep in mind that we may be very well in the midst of a new digital assets space race with countries around the world competing to deploy digital versions of their own currencies,” Ms. Waters said. “America can’t be left behind.”

Ms. Brainard echoed those remarks in her written testimony, saying a digital dollar 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 the U.S. currency to transact and conduct business in the digital financial system.”

House Republicans signaled skepticism. Rep.

Patrick McHenry

(R., N.C.) suggested the potential harms of a U.S. digital dollar outweighed any benefits. “What specific problems, if any, will a central bank digital currency solve?” he asked Ms. Brainard.

Benefits include consumer access to safe, central-bank issued currency in a period of rapidly declining use of physical cash, Ms. Brainard said. She said a digital dollar could also address fragmentation of the payment system if stablecoins one day become the dominant form of digital payments.

The central bank in January sought public comment on an in-house report designed to spark debate on whether and how a U.S. digital dollar could improve the domestic payments system. The paper doesn’t favor any policy outcome, and the Fed said the release of the report wasn’t meant to signal any imminent decision.

President Biden’s cryptocurrency executive order may have produced more questions than it’s answered: What’s a central bank digital currency? How is it different from crypto? And why hasn’t the Fed introduced a digital dollar? WSJ’s Dion Rabouin explains. Photo composite: David Fang

The report comes as central banks around the world contend with the rise of numerous private electronic alternatives to traditional money and weigh creating their own versions. Private offerings of digital currencies have been extremely volatile, and in many cases have been associated with criminal activities. They also have so far failed to be adopted widely for daily transactions, such as for buying groceries or movie tickets.

China has created its own government-issued digital currency and has prohibited transactions using cryptocurrencies issued by nonmonetary authorities, naming bitcoin, ether and tether as examples. El Salvador, meanwhile, became the first country in the world to adopt bitcoin as a national currency alongside the U.S. dollar.

Banks and their trade groups say the idea has several drawbacks in the U.S., among them potentially disrupting the financial system by attracting deposits away from traditional commercial banks, resulting in higher loan costs for households and businesses.

“Current research overwhelmingly undermines the purported benefits of a CBDC and instead indicates that a CBDC would seriously disrupt the financial system, significantly harming consumers and businesses,” said

Greg Baer,

the head of the Bank Policy Institute, an industry group, in a written statement last week.


Should the Fed offer a digital dollar? Why or why not? Join the conversation below.

Advocates of the idea say a Fed digital dollar could make it faster and cheaper to move money around the financial system, bring into it people who lack bank accounts, and provide an efficient way for the government to distribute financial aid.

However, Fed Chairman

Jerome Powell

has indicated he sees reason for caution. He has said it is more important to get the digital dollar right than to be first to market, in part because of the dollar’s critical global role.

Other officials have voiced more skepticism about the need for a Fed digital currency. Former governor

Randal Quarles,

who left the Fed in December, said last summer that the U.S. dollar is already “highly digitized” and expressed doubts that a Fed digital currency would help draw people without bank accounts into the financial system or lower financial transaction costs, a goal that can be accomplished through other means, he said.

Write to Andrew Ackerman at

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