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Brainard: No compelling need for Fed to issue digital currency

There is "no compelling demonstrated need" for the U.S. Federal Reserve to issue its own digital currency and doing so could pose serious issues, Fed Governor Lael Brainard said May 15.

Brainard added her voice to those at the central bank warning about the rise of cryptocurrencies, from their volatility to concerns over consumer protection and money laundering.

Some, she noted, have floated the idea of central banks issuing their own digital currencies that would be more reliable alternatives to current options, such as Bitcoin. In November 2017, Brainard said the Fed was studying the issue as an "intellectual exercise."

But at a May 15 speech in San Francisco, Brainard said the appeal of a Fed-issued digital currency "may not withstand closer scrutiny." For one, she said, the central bank's technology would be an attractive target of cyberattacks. Widespread adoption of a digital currency could also lead to drastic falls in deposits for banks, which could significantly harm the economy as banks would be less able to make loans.

There is also little need for that approach, given that mobile apps are helping people make quicker digital payments, she said. The Fed's Faster Payments Task Force has also recommended a wide variety of other improvements, she added.

"In short, a multiplicity of mechanisms are likely to be available for American consumers to make payments electronically in real time," she said. "As such, it is not obvious what additional value a Fed-issued digital currency would provide over and above these options."

Still, she said, the Fed and other central banks should continue studying the evolving technologies and how they could prove valuable. She also noted the financial industry has gotten underway at looking at how it can use the underlying distributed ledger technology to make payments more efficient.

At a separate conference this week, St. Louis Fed President James Bullard said the dollar "is going to remain the dominant currency" in the near future even if cryptocurrencies continue becoming more popular.