A recent speech by Fed Governor Lael Brainard entitled “Digital Currencies, Stablecoins, and the Evolving Payments Landscape” discusses a number of topics of interest to the crypto community, including the development of stablecoins and their potential impact on the global payments system. In particular, Governor Brainard opined that the widespread adoption of stablecoins could have implications for the role of central banks and monetary policy.

Using Libra as an example, Governor Brainard highlighted a core set of legal and regulatory challenges that any stablecoin aspiring to global scale must confront before it can facilitate a first payment. For example, she observed that compliance with know-your-customer rules and regulations are essential to ensure stablecoins are not used for illegal activities and illicit finance. Governor Brainard also emphasized that issuers of stablecoins designed to facilitate consumer payments must clearly demonstrate how they will ensure the protection of consumers. She further noted that it will be necessary to define the financial activities that the various players in the ecosystem are conducting in order for jurisdictions to assess whether existing regulatory and enforcement mechanisms are adequate.

The governor next turned her attention to the debate surrounding the propriety of a central bank-sponsored cryptocurrency. She defended the current monetary system and warned of the risks attendant to a central bank digital currency. These risks include potential disruptions to monetary policy, financial stability and related operational risks. At the same time, she acknowledged the benefits of financial innovation to the payment system and hyped the Fed’s development of its FedNow payment service.

In conclusion, Governor Brainard emphasized that the Federal Reserve remains confident in the power of technology and innovation to transform the financial system and reduce frictions and delays, while preserving consumer protections, data privacy and security, financial stability, and monetary policy transmission and guarding against illicit activity and cyber risks. At the same time, she stated that global stablecoin networks (such as Libra) should be expected to meet a high threshold of legal and regulatory safeguards before launching operations.