Recently, the popularity of digital currencies has drawn much concern from regulatory officials. Officials of the United States continue to give their opinion about CBDCs and stablecoins. 

While some call for strict regulations, others have called for flexible rules. They believe relaxed regulations will provide room for development in the sector. 

Lael Brainard, the Fed’s Vice Chair gave her speech before the House of Rep. During the speech, she shared her views on stablecoins, CBDC, and physical currency.

Physical Currency Vs CBDCs And Stablecoins 

Brainard noted that physical currency has the greatest advantage compared to CBDCs. According to her, it gives the public access to safe money issued by the central bank. Also, physical currency does not have credit or liquidity risks.

Unfortunately, she revealed that the percentage of cash payments has dropped in the US. Over the past five years, it dropped from over 31% to about 20%. 

Age groups under 45 have the lowest usage of physical currency. As a result, it has become necessary to preserve the central bank currency. 

Brainard Says No To Stablecoins 

The VC showed no support for stablecoins which she believes are too risky. She noted that stablecoins have no security and can introduce risk into the payments system. 

From her explanation, stablecoins lose value easily compared to physical currency. As a result, consumers and investors can lose their funds in a short time. This could cause great financial instability in the market.

The issuance of fiat currency by the government was to reduce financial risks. These new forms of money could reintroduce these risks and harm consumers. The official noted that stablecoins are highly volatile, citing the recent issue with TerraUSD. 

Furthermore, Brainard feels that usage of cryptos and stablecoins can affect the US payment system. In her words, it could lead to the “fragmentation of America’s payment system.”

CBDCs And Stablecoins Can Coexist In The Future

The Federal Reserve official showed support for CBDCs, which she believes can complement fiat currency. She stated that;

“In the future, CBDC might work together with fiat currency and stablecoins. It could provide a secure central bank liability for the digital financial system. This will be similar to how cash and commercial bank currency coexist.”

Since the emergence of stablecoins, there have been several debates concerning its benefits. With the recent crash of the TerraUSD, various officials have called for a regulatory framework for stablecoins. 

Brainard and other financial bodies think that CBDC could reduce the value of a nation’s currency. As a result, she advises that countries evaluate potential risks before adopting CBDC. Furthermore, she also added that governments and financial institutions should weigh potential risks.