The Federal Reserve is paying close attention to China’s progress in developing a digital currency, especially its use in international payments, Fed Governor Lael Brainard said Monday.
“It is very important for us to follow many central banks’ progress on [central bank digital currency, or CBDC,] closely, including China’s,” Brainard said, during a virtual discussion at the Consensus by CoinDesk Conference.
“The issuance of a CBDC in one jurisdiction, particularly to the extent that it is designed for prominent use in cross-border payments, does potentially have significant effects across the globe,” she added.
It is critical for the Fed to be “at the table” in the development of any cross-board standards for central bank digital currencies, Brainard added.
After moving slowly toward digital currency development, the Fed announced last week it will pick up the pace of its work on a digital dollar this summer.
Derek Tang, an economist at LH Meyer, said that the change of attitude at the Fed may stem from a growing sense that China is far ahead of the U.S. in its plans for a digital currency. Although aimed mainly at the retail space, China is already setting up the ability to use its digital yuan for some cross-border payments, Tang noted.
In her remarks, Brainard stressed that the dollar
should remain the foundation of the U.S. payment systems rather than a system of competing private stable coins as some have suggested.
“A predominance of private monies may introduce consumer protection and financial stability risks because of their potential volatility and the risk of run-like behavior,” Brainard said.