Federal Reserve Governor Christopher J. Waller suggested the invention of stablecoins made the issuance of a central bank digital currency (CBDC) by the institution redundant.
What Happened: Waller said in a speech published Wednesday that private-sector innovations such as stablecoins are the reason why he is skeptical of the need for the Federal Reserve to issue its CBDC.
See Also: HOW TO EARN INTEREST WITH STABLECOINS
While Waller highlighted that he views them as a major innovation, he also pointed to three major risks brought on by stablecoins.
1. A potential destabilizing run in which unregulated or reckless issuers provide unstable financial instruments that cause a "bank run" of sorts, which also influences the broader market.
2. A payment system failure that could lead to inconsistent standards of clearing and settlement.
3. The risk of scale, which would see a mega-stablecoin monopoly allowing an issuer to hurt its competition and decrease the network benefits consumers could enjoy.
Still, Waller showed an overall positive attitude towards stablecoins and said "the Federal Reserve and the Congress have long recognized the value in a vibrant, diverse payment system, which benefits from private-sector innovation."
Waller said financial "innovation can come from outside the banking sector" and it should not be surprising if it comes from the commercial context of Silicon Valley.
"We should give those innovations the chance to compete with other systems and providers — including banks — on a clear and level playing field," Waller said.
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