Cryptocurrencies are a topic on the lips of every government and non-government official worldwide. Amidst the constant volatility that the market experiences, the Federal Reserve seems always to have something to contribute. This time, the vice-chairperson of the organization pulled a statement concerning stablecoins and their influence on other fiat currencies.
On May 26, the Federal Reserve’s VC Lael Brainard released a statement on its effect. Vice Chair’s released the statement before the Financial Services Committee in the U.S. House of Representatives. In her testament, she explained the adverse effects crypto and its new technology could have on physical currencies and others.
Fiat vs. Crypto
During the presentation, the Vice-Chair stated that there were various advantages of using fiat currencies. One of the advantages was that “it allows public individuals to access their cash safely in the central bank. It is done without any concerns regarding liquidity or credibility.”
Further in the meeting, she stated that the number of payments received in cash in the U.S. had reduced to 20%. The reduction decreased from 31% within five years, and a lower percentage is projected to come in 2024.
According to Brainard, there should be a concern about how CBDC can preserve access to public funds. She further suggested that the Federal Government of the U.S. release its version of physical currency. The digital currency would be rolled-out as a virtual currency to mitigate the use of stablecoins. To give a complete understanding of her explanation,
“Deposit insurance, access to central bank liquidity, and banking regulation and supervision all contribute to trust in commercial bank money.”
Stop Stablecoin Usage?
Brainard also went further to fault the use of stablecoins during her testimony. She stated that stable cryptocurrencies do not share the same securities and protections as fiat. In her words, they have a form of risk attached to them and are a massive risk to payments interfaces. According to Brainard, cryptocurrencies as legal tender will lose their value, unlike fiat currency.
On losing its value, holders and investors could experience financial and stability risks due to trust and expectations. So! These results led to the introduction of a general form of fiat issued by the Federal Government. She deduced that “having virtual and monopolized money could threaten user privacy and financial stability.”
The VC’s reason, in her words, “is due to constant volatility and uncontrollable risk; as demonstrated in the current cycle.” Brainard also understands that overuse of these “private currencies” could result in the “division of the U.S. fintech into closed systems.”
The Way Forward
CBDCs should find a way to work simultaneously and symbiotically with these new currencies. Coexisting might be far in the future, but it will provide a safe physical and virtual banking experience. In her final words, she also mentioned her thoughts, considering researching and understanding the risk that fiat currencies hold.