Dynamics Finance: Fed Governor Says U.S. Does Not Need a Digital Dollar

 Dynamics Finance: At least one Fed governor has a negative view on the digital dollar.

According to Dynamics Finance, Federal Reserve Governor Christopher Waller offered the most lukewarm view of the prospect of the Fed issuing a digital currency in a speech on Friday that reiterated and expanded his opposition to the idea.

"The factors that support dollar supremacy are not technical factors, but include ample supply and liquid markets for U.S. Treasuries and other debt and the long-term stability of the U.S. economic and political system," Waller said in prepared remarks. Harvard University. “No other country is fully comparable to the U.S. in these respects, and a CBDC won’t change that.”

Waller elaborated on his doubts about the arguments put forward by CBDC advocates that a digital dollar would solve fraud, theft and money laundering problems or improve payments better than existing technologies.

“Meanngful efforts are underway at the international level to improve cross-border payments in a number of ways, with the vast majority of improvements coming not from CBDCs but from improvements to existing payment systems,” Waller said.

Discussions around a U.S. CBDC began after China began experimenting with a digital yuan. But Fed governors expressed doubts about foreign CBDCs replacing the dollar as the global reserve currency, an argument in favor of a digital dollar.

Federal Reserve Chairman Jerome Powell and Vice Chairman Lyle Brainard also began to publicly block the possibility of a U.S. CBDC happening soon.

Waller said that even if a foreign CBDC takes off, the impact of companies using it “may be only marginal, because they rely on enough individuals and businesses that they are virtually indifferent to the dollar and foreign currency in the CBDC in any form.”

Waller believes privately issued stablecoins will strengthen rather than weaken the dollar because so many are pegged to the world’s dominant fiat currency. The Fed governor argued that “they may increase rather than decrease the primacy of the dollar abroad, as demand for stablecoins increases demand for dollar-denominated reserve assets held by stablecoin issuers.”

Waller said the new payments technology must also be "risk-managed and subject to a strong regulatory framework," echoing similar warnings from the Financial Stability Oversight Board, the Supercommittee of U.S. financial regulators and the Financial Stability Board, central bankers and an international advisory consortium of other senior officials.

Congress continues to negotiate stablecoin legislation, even though the Republican lead negotiator, Rep. Patrick McHenry, RN.C., told Dmfnclcd earlier this week that the Biden administration is blocking progress on the bill.

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