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A second senior Federal Reserve official on Thursday expressed opposition to the creation of a digital currency issued by the Fed that could be used by the general public.
Fed Governor Christopher Waller added that a central bank-issued digital currency (CBDC) could be expensive to implement, arguing that privately-issued stablecoins could better meet the need for more payments. fast.
“Upon careful consideration, I am not yet convinced that a CBDC would solve any existing problem that is not addressed more quickly and effectively by other initiatives,” Waller said in remarks to the American Enterprise Institute. Thursday.
The Fed is currently in the early stages of assessing the pros and cons of a CBDC, which could take the form of a digital dollar held in digital wallets managed by the central bank. The central bank plans to release a paper on the outlook for a CBDC and the vast cryptocurrency space in September.
But Waller has already joined his colleague, the Fed’s vice president of oversight Randal Quarles, in publicly criticizing the need for a CBDC. Quarles said in late June that a CBDC could be a serious target for hackers, arguing that issuing a CBDC “would pose significant and tangible risks.”
Waller also said “extreme cybersecurity risk” is, in his view, the biggest downside concern.
Proponents of a CBDC argue that it could be a cheaper way for users to make payments and transfer money, especially for the roughly 5.4% of U.S. households that are unbanked ( in 2019).
Figures like the former president of Federal Deposit Insurance Corp. Sheila Bair also argued that a CBDC, in future crises, would allow the Fed to bypass the banking system and provide monetary stimulus directly to US wallets.
Private stablecoins
Waller rejected the potential benefits of a digital dollar issued by the Fed, questioning the central bank’s ability to develop the technology at a lower cost than private issuers.
The Fed governor, who joined the central bank’s board in December 2020, said private stablecoins already offered the “attractive payment instrument” for an asset pegged to a dollar.
Stablecoins tie their values to one or more other assets, such as sovereign currencies, and serve as a less volatile asset compared to non-backed cryptocurrencies like bitcoin.
Still, Waller said stablecoins would benefit from some regulation, as Fed Chairman Jerome Powell also suggested.
“It is not clear whether the stablecoin issuer will respect that 1: 1 exchange rate in a race – if a race were to occur,” Waller said Thursday. He cited Tether as an example, suggesting that the nature of its commercial paper holdings is not transparent enough.
Waller proposed a liquidity test on the balance sheets of stablecoins issued by the private sector, which could assess holdings of short-term government bonds and other securities widely considered highly liquid.
Bank of America wrote last week that stablecoins, whether issued by private or central banks, “seem inevitable and the only question is when and with what problems along the way.”
An escalation of the debate within the Fed will raise new questions about the right balance between public and private actors.
Brian Cheung is a reporter covering Fed, Economics and Banking for Yahoo Finance. You can follow him on Twitter @bcheungz.
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