Digital Dollar Launched by Cryptocurrency

Fed Emphasizes Importance of CBDC, Suggests "US to Lead Standard Setting"

[Photo by AFP Yonhap News]

[Asia Economy New York=Special Correspondent Baek Jong-min, Reporter Park Byung-hee] Lael Brainard, a member of the U.S. Federal Reserve (Fed), pointed out the risks of cryptocurrencies and emphasized that the United States should play a role in establishing standards for Central Bank Digital Currencies (CBDCs). It is analyzed that cryptocurrencies are paradoxically acting as a catalyst accelerating the adoption of CBDCs by central banks worldwide.

According to Bloomberg on the 24th (local time), Brainard expressed a negative view on cryptocurrencies, which have recently attracted significant attention, at an event hosted by cryptocurrency media CoinDesk. She said, "New forms of private money can pose risks to the payment system," adding, "This can endanger consumers and undermine financial market stability."

Brainard also emphasized the importance of CBDCs. She argued that digital currencies issued by central banks, not privately created cryptocurrencies, should be applied to payment systems. Brainard stressed, "As CBDCs gain importance in international payment systems and considering the dollar's role as the global reserve currency, the U.S. role in developing global CBDC standards is crucial." She also said, "Due to COVID-19, so-called contactless payment methods are widely used," and "a digital dollar can be competitive."

Brainard's remarks are interpreted as the Fed effectively deciding to introduce a digital dollar and expressing its intention for the U.S. to lead international CBDC standards. The Fed has been cautious about CBDCs until now. However, last week, Fed Chair Jerome Powell announced that the Fed would publish its first report on digital currencies this summer, showing a recent shift toward a proactive stance on CBDCs. As the cryptocurrency market, including Bitcoin, has grown large enough to threaten the existing financial system, the Fed has moved from a passive stance to an active response mode. Jan Hatzius, Chief Economist at Goldman Sachs, predicted that the Fed will eventually issue a digital dollar.

China is considered to be one step ahead of the U.S. in CBDC issuance, continuing digital yuan experiments in major cities. China has also recently cracked down on cryptocurrencies by banning Bitcoin trading and mining, which is interpreted as an effort not to lose dominance of the digital currency market to the private sector.