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A member of the US Federal Reserve Board of Governors shares his thoughts on the benefits of using private stablecoins over central bank digital currencies (CBDCs).
In a speech at the American Enterprise Institute in Washington, DC, Governor Christopher J. Waller discusses the benefits of using a privatized digital currency in place of a CBDC.
Waller says the concept of a CBDC is “a solution in search of a problem”. He argues that a privatized digital dollar could be more effective than a CBDC in several ways.
“It seems to me, however, that private sector innovations could reduce the margin charged by banks more effectively than a CBDC would. If commercial banks derive rents from their market power, then there is a profit opportunity for non-banks to enter the payments business and provide cheaper payment services to the general public.
And, indeed, we are currently seeing a wave of non-bank payments. “
Waller specifically discusses the benefits of stablecoins and how they could potentially minimize mark-up prices for payment services.
“For example, in recent years ‘stablecoin’ deals have become a particularly important type of non-bank entry into the payments landscape. Stablecoins are digital assets whose value is linked to one or more other assets, such as a sovereign currency. A stablecoin could serve as an attractive payment instrument if it is pegged to a dollar and backed by a safe and liquid pool of assets.
If one or more stablecoin deals can develop a large user base, it could become a major challenge for banks to process payments. It is important to note that payments using such stable coins could be “free” in the sense that no fees would be required to initiate or receive a payment. As a result, one can easily imagine that the competition from stablecoins could put pressure on banks to reduce their profit margins for payment services. “
Waller is also responding to concerns about the potential of stablecoins to downplay the primacy of the US currency. The governor said stablecoins could actually help US monetary policy as long as they are pegged to the dollar.
“Commercial banks and stable coins indexed to the US dollar serve as relays for US monetary policy and amplify political actions. So, if anything, private dollar-indexed stablecoins expand the scope of US monetary policy rather than diminish it. “
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Featured Image: Shutterstock / KhDuy Vo
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