US Fed under pressure from cryptocurrencies and BigTechs

Reflections are accelerating within the American Federal Reserve to meet the need for innovation in payment systems and the pressure from technology players. The creation of a digital dollar, a CBDC, may be an answer.

A decade earlier, the Bitcoin aimed to replace traditional money by constituting a store of value and a means of payment. Its too big volatility did not allow him to achieve this, says Lael Brainard, governor within the Fed.

It could be quite different stablecoins, and in particular of Libra, warns the banker, who spoke at a symposium in California on the future of payments.

Libra has given urgency to the debate

Because Facebook has a network of active users representing a third of the world's population, Libra stablecoin project has given urgency to the debate over what form money can take, who or what can issue it, and how payments can be recorded and settled, ”notes Lael Brainard.

And this urgency is also exercised within the Federal Reserve, forced to react to innovations brought by new technological players, BigTechs and FinTechs, and also to meet the expectations of banks and individuals.

In this area, the Fed assures that it is committed to closing the delay in accelerating payments. It is thus developing a new infrastructure intended to allow payments (almost) in real time: FedNow Service.

FedNow will facilitate faster end-to-end payment services, increase competition and ensure fair and ubiquitous access to banks of all sizes across the country, ”Lael Brainard promises.

CBDC is a possibility, but no rush

This project will not, however, be enough to respond to pressure from the private sector and consumer expectations. The Fed is therefore also carrying out work around central bank digital currencies or CBDC.

Given the important role of the dollar, it is essential that we remain on the frontier of research and policy development on CBDC. Like other central banks, we are conducting research and experimentation related to distributed ledger technologies and their potential use for digital currencies, including the possibility of a CBDC, ”said member of the Fed's Board of Governors .

It is thus collaborating with other central banks to better understand these digital currencies. But the urgency mentioned by Lael Brainard will not lead to haste in this sector, she suggests. Regulatory and economic issues are indeed complex, insists the banker.

It notes in particular that several of the reasons invoked to justify the creation of a CBDC are not current in the United States:

The physical cash in circulation for the US dollar continues to increase due to robust demand, and the dollar plays an important role globally. We have a strong and diverse banking system that provides important services, as well as a wide and expanding range of digital payment options, ”

This fall, the president of the Philadelphia Fed, Patrick Harker, said that it was "inevitable" that central banks, including the Federal Reserve, begin to issue this new type of currency.