First, let me extend my congratulations to Dr. Lael Brainard on her confirmation as the Vice Chair of the Board of Governors of the Federal Reserve System. I am glad you have joined us in this new capacity to discuss the potential of central bank digital currencies, or CBDCs, as part of the future of our financial and monetary system.
Today, we continue the Committee’s bipartisan series of hearings on digital assets. This hearing will allow us to examine and discuss the Fed’s ongoing research on CBDCs and to learn how the Fed is working with other federal agencies, as encouraged by the White House in its recent executive order on digital assets, to ensure that the U.S. is properly regulating the cryptocurrency industry.
While cryptocurrencies have the potential to offer several efficiencies in the way that we send and receive money, the early stages of innovation in this realm are revealing the clear risks associated with some cryptocurrencies, including significant volatility in even so-called “stablecoins” that despite their name, have been anything but a stable value. Earlier this month we saw the dramatic collapse of Terra, which according to one analysis firm, resulted in investors losing more than $40 billion in a product that was supposed to always return one dollar for each dollar invested.
CBDCs have the potential to harness the efficiencies of cryptocurrencies while providing the security and stability of the U.S. dollar, backed by the full faith and credit of the federal government.
As we explore the possibility of a U.S. CBDC and the future of the global financial system, we must keep in mind that we may very well be in the midst of a new digital assets space race, with countries around the world competing to deploy digital versions of their own currencies, and America can’t be left behind. The U.S. dollar has long been the global leader and reserve currency worldwide, and Americans reap enormous benefits from having their currency widely accepted across the globe.
For example, a reserve currency means that the U.S. government’s cost of financing is lower, which translates long term into lower mortgage and credit card rates than consumers see in other countries. But it is not hard to imagine how another major economy’s CBDC could chip away at the dollar’s leadership status because of efficiencies that CBDCs could offer in making instantaneous and secure payments at a lower cost.
According to estimates, over 90 nations, representing 90% of the global GDP, are researching, piloting, or developing CBDCs, including China, which rolled out its CBDC at the Winter Olympic Games in Beijing.
As the U.S. explores the potential for our own CBDC, I believe the design of this digital dollar should balance the need for privacy protections while retaining mechanisms to prevent money laundering and other illicit uses. I also strongly believe that a U.S. CBDC should be designed to promote financial inclusion. These are values that I believe the Democrats and Republicans share, but values that other countries, like China, in this digital assets race share. That is why it is critical for the U.S. to stay competitive in this field to ensure that our values prevail as the way that the global financial system evolves.
I have appreciated the bipartisan interest and discussions that this series of hearings has fostered, and I am hopeful that Ranking Member and I can work together to put forth legislation that reflects common ground on these issues.
So, I look forward to hearing the testimony of our distinguished witness, Vice Chair Brainard. I appreciate your willingness to testify before us today, and I yield back the remainder of my time.
Sent from the Committee on Financial Services
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