Many discussions have been on whether Central Bank Digital Currencies (CBDCs) could coexist with stablecoins and other digital currencies. We have seen a large number of governments analysing the possibility of introducing CBDCs, and this is something that looks more possible now than in the past.
This time, the Federal Reserve Vice Chair Lael Brainard stated that CBDCs and stablecoins could definitely coexist in the economy. According to Brainard, a CBDC issued by the United States could also be one way to ensure people worldwide continue using the U.S. dollar.
Could Stablecoins Coexist with CBDCs?
Stablecoins and CBDCs could coexist in the future according to the Federal Reserve Vice Chair Lael Brainard. A central bank digital currency is a digital asset issued by a central bank that works in a similar way to cryptocurrencies. Rather than creating and printing dollars, a CBDC would open new possibilities to conduct monetary policy for governments.
Stablecoins, instead, are cryptocurrencies with a “stable” value tied to a fiat currency. The most common and popular stablecoins are pegged to the U.S. dollar (USD). Tether (USDT) and USD Coin (USDC) are the most popular ones. Rather than relying on a central bank to issue stablecoins, they are created and released to the market by private companies that hold enough reserves (cash and cash equivalent) to be able to keep the value pegged to the fiat currency they hold.
Brainard said that it is prudent to consider how the lack of a U.S. CBDC could affect the stability of the dollar around the world. Let’s not forget that the USD is the most used and demanded currency. If other central banks start issuing their CBDCs, this could eventually harm the U.S. dollar by reducing its demand.
Brained commented on that matter:
“U.S. CBDC 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.”
She has also mentioned that the Federal Reserve should also analyse possible risks related to issuing CBDCs and mitigate them. Brainard said that it could be possible to offer non-interest bearing CBDC or limit the amount of CBDC that a person or an institution could hold or transfer.
Due to the recent issues faced by TerraUSD (UST), central banks and financial regulators have been focusing on stablecoins and possible regulations for the coming years.
Despite the fact that there could be many benefits to CBDCs, the cryptocurrency community remains worried about it. One of the main issues behind CBDCs is related to the fact that governments could have much more control over their citizens. They might be able to check what they spend their money on and eventually block some specific transactions.
These are all things that can already be done by centralized financial institutions but CBDCs would make it even easier.