Fed conference hears that stablecoins may bolster the USD's standing as the global reserve currency

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Fed conference hears that stablecoins may bolster the USD’s standing as the global reserve currency

Fed conference hears that stablecoins may bolster the USD's standing as the global reserve currency
Source: CoinTelegraph
1657104975 06 Jul / 10:56

The majority of exporters believe a U.S. dollar central bank digital currency (CBDC) would not significantly alter the global currency environment, according to a new note issued by the Federal Reserve of the United States.

The panelists at the conference also agreed that the development of CBDCs outside the U.S. does not threaten the dollar's status. However, the development of cryptocurrencies could alter the dollar's global role, with some speculating that stablecoins could even strengthen the U.S. dollar's position as the dominant global reserve currency.

The judgments were compiled from expert panelists at a Federal Reserve-hosted conference on the "International Roles of the U.S. dollar" held on June 16 and 17 and published by The Fed on Tuesday. The conference's purpose was to acquire information from policymakers, researchers, and market professionals regarding "possible variables that may influence the U.S. dollar's future supremacy," such as new technologies and payment methods.

During a panel discussion on digital assets and whether CBDCs would bring benefits to the dollar, panelists agreed that the underlying technology alone would not “lead to significant changes in the global currency environment.”

On the panel were Neha Narula, director of the digital currency program at MIT, Hyun Song Shin, head of research at the Bank of International Settlements, Rebecca Patterson, chief investment strategist at asset management company Bridgewater, and Paul Mackel, head of FX research at HSBC bank.

The panelists concurred that market and political stability, as well as market depth, are more critical for dominant reserve currencies, such as the U.S. dollar, than the creation of a Fed-issued digital dollar.

As a result, the establishment of CBDCs in other nations was deemed “not a threat to the U.S. dollar’s international status.”

In an October 2021 note, the Federal Reserve stated that the volume and breadth of CBDCs for cross-border payments are “still quite limited,” indicating that these systems do not yet constitute a danger to the dollar, which accounts for the vast bulk of international financial transactions.

Focusing on cryptocurrencies, panelists stated that further development of digital assets could alter the dollar’s international role, but adoption by institutional investors was hampered by the absence of a regulatory framework, leaving the current crypto market dominated by speculative retail investors.

Asani Sarkar, a Fed financial research adviser, and Jiakai Chen, a finance professor, concluded that a portion of the demand for cryptocurrencies, particularly Bitcoin (BTC), was driven by a desire to evade domestic capital controls, citing the fact that BTC prices in China are higher than in other countries.

Despite this, the Fed reports that panelists did not view crypto as a danger to the dollar’s global position shortly. Some have even suggested that, in the “medium term,” cryptocurrencies could strengthen the dollar’s position if “new sets of services structured around these assets are linked to the dollar.” This is likely a reference to stablecoins, cryptocurrencies whose value is pegged to that of a fiat currency (usually USD).

The panelists’ recommendations may provide Federal Reserve members with a fresh perspective.

Previously, in June, the Federal Reserve Board of Governors stated that stablecoins insufficiently supported by liquid assets and suitable regulatory criteria “present risks for investors and potentially the financial system,” presumably referring to the collapse of TerraUSD Classic (USTC).

Before Federal Reserve chair Jerome Powell claimed that a CBDC might “potentially help maintain the dollar’s international standing,” the Board made its statement.

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