According to Lael Brainard, vice chair of the US Federal Reserve, stablecoins and a central bank digital currency (CBDC) might coexist. There are differences between these two currencies. Stablecoins are digital currencies linked to an actual asset, whereas CBDCs are digital currencies issued and backed by central banks.
The idea behind the CBDC’s inception
Ms. Brainard pointed out that the introduction of CBDCs is a reaction to the ongoing discussion about a potential new form of money. Stablecoins and other payments made in the private sector must be accommodated by this currency. Ms. Brainard believes CBDCs might end up being less dangerous. They could function in the new financial environment as a neutral option for settlement. This would support private sector innovation.
The US central bank would support the new CBDC, similar to how it is backed by the US dollar (in coins and paper money). It is a governmental organization and a secure substitute for cryptocurrencies like Bitcoin (BTC). In a world where real currency is dwindling, she also said that the CBDC would show to be a safer access to digital currency. The prospective usage of digital currencies by central banks can undoubtedly improve their reputation.
The response to the potential alignment of CBDCs with stablecoins
The Federal Reserve paid notice to Ms. Brainard’s proposals. Wall Street bankers have also voiced their worries about the American banking system being disrupted. The creator of USDC, Circle, claimed that other cryptocurrencies would suffer if a government-backed digital currency was introduced. Officials from the Fed have made it plain that the CBDC is not currently a priority for the US central bank. The opinions of the President and Congress would be taken into consideration before decisions were made.
Former Governor Randal Quarles, who left the Fed in December, criticized these arguments and warned that the US dollar would become “extremely digital.” He is worried about the potential entry of people without bank accounts into this ecosystem as a result of the creation of a new digital currency. Additionally, it would lower the price of financial transactions. He noted that if that is the goal, it may be achieved through other means.
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