Within a recent address to an industry conference, Dr. Lael Brainard, a member of the Board of Governors of the Federal Reserve System (FRB), drove home her belief that the adoption of stablecoins over a U.S. Centralized Bank Digital Currency (CBDC) could place the U.S. in danger of “inefficiency, fraud, and instability in the payments system,” drawing a parallel to a period in U.S. history during the 19th century when the U.S. had competition among issuers of private paper banknotes. In her support of a U.S. CBDC, Governor Brainard stated that there are four developments driving the increased focus on a CBDC: (1) the growing role of digital private money, (2) the migration to digital payments, (3) plans for the use of foreign CBDCs in cross-border payments, and (4) concerns about financial exclusion. These developments have brought the FRB to assess the benefits of a U.S. CBDC which Governor Brainard stated includes the fact CBDCs:   

• preserve general access to safe central bank money
• promote competition and diversity and lower transactions costs
• improve efficiency
• reduce cross-border frictions
• complement currency and bank deposits
• protect privacy and safeguard financial integrity, and
• increase financial inclusion

Governor Brainard’s comments add context to what Federal Reserve Chair Jerome Powell stated on May 20, 2021 when he released a “Message on Developments in the U.S. Payments System."  In his comments, Chairman Powell confirmed, the Federal Reserve Board will issue a discussion paper this summer outlining the FRB’s current thinking on digital payments, with a particular focus on the benefits and risks associated with CBDC in the U.S. context. The chairman went on to state, “Irrespective of the conclusion we ultimately reach, we expect to play a leading role in developing international standards for CBDCs, engaging actively with central banks in other jurisdictions as well as regulators and supervisors here in the United States throughout that process”.

Obviously, the creation and adoption of a U.S. or any sovereign nation’s CBDC will have broad impact across every aspect of the financial services and payment industries. Participants within our industries should be following these developments closely and begin to contemplate and outline what their response, adoption, and integration plans will look like.