Lael Brainard, a member of the Federal Reserve’s board of governors, said the rapidly changing digital finance world, with its decentralized focus, will necessitate the Fed change its ways, too.
Speaking before the 2022 U.S. Monetary Policy Forum in New York City on Friday (Feb. 18), Brainard said the innovations hold promise, but also “potential risks.”
“With technology driving profound change, it is important we prepare for the financial system of the future and not limit our thinking to the financial system of today,” she said.
She cites the “explosive” growth of digital assets. Cryptocurrency market capitalization grew from under $100 billion in 2017 to almost $3 trillion in 2021 and around $2 trillion today.
In addition, she said decentralized finance, or DeFi, platforms have added to the ways people can buy and lend, and trade and hold crypto assets, while driving demand for stablecoins.
Because of all this, the Fed needs to prepare — including considering a central bank digital currency (CBDC) and what benefits could come from that.
She said the digital payment system “delivers important benefits” and will improve with developments like real-time payments. Challenges remain, however, like a lack of access to digital banking for some, and slow cross-border payments.
A CBDC, Brainard said, may bridge some of those gaps and complement private-sector innovations.
She praised the private sector, too, saying it added to the competition and encouraged efficiency and new products.
Read more: Fed’s Brainard: US Needs CBDC For International Use Cases
Brainard has spoken about this before, saying last summer that developing a CBDC could be prudent.
PYMNTS wrote that she said the dollar is “very dominant” in international payments. However, she said, if “you have the other major jurisdictions in the world with a digital currency, a CBDC offering, and the U.S. doesn’t have one, I just, I can’t wrap my head around that.”
She said it didn’t seem sustainable for the U.S. to not develop a CBDC in the long run.
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