Hoosier Banker 101 THE INTUITIVE DIFFERENCE Secure, scalable, & reliable managed support for business. Backup & Disaster Recovery Network Infrastructure 24x7 Emergency Support Managed Compliance & Risk Select only the services you need Security & Compliance Cloud Services Collaboration vCIO Services See what Intuitive Managed Support can do for your business Cheers to 125 years! issues, including money laundering and international financial stability concerns. And as with a foreign-issued CBDC, the dollar’s function as a unit of account and store of value is unlikely to be affected, resulting in a limited effect on the international role of the dollar. Stablecoins The last scenario I want to consider is one in which a privately issued stablecoin pegged to a sovereign currency is available for international payments. Stablecoins are crypto-assets that aim to maintain a stable value relative to a specified asset or pool of assets.15 The reasons that stablecoins may be more attractive than existing options for payments include their ability to provide real-time payments at lower cost between countries that were previously poorly serviced and to provide a safe store of value for individuals residing in or transacting with countries with weak economic fundamentals. This is different than an intermediated U.S. CBDC, for which access in developing economies would depend on banks’ incentives to provide such access. Stablecoins, however, may be held directly in any country that allows its citizens to do so. To improve payments, especially for jurisdictions that are not well served under the current global payments ecosystem, stablecoins must be risk-managed and subject to a robust supervisory and regulatory framework. Could such an asset affect the role of the U.S. dollar? Once again, I am unsure whether even a large issuance of a stablecoin could have anything more than a marginal effect. It has often been suggested by commentators that private money-like instruments such as stablecoins threaten the effectiveness of monetary policy. I don’t believe that to be the case, and it should be noted that nearly all the major stablecoins to date are denominated in dollars, and therefore U.S. monetary policy should affect the decision to hold stablecoins similar to the decision to hold currency. This follows from a vast body of evidence in international economics showing how countries pegging their exchange rates effectively import monetary policy from the country to which their currency is pegged.16 1 These views are my own and do not represent any position of the Board of Governors or other Federal Reserve policymakers. 2 See Board of Governors of the Federal Reserve System Ʉ“Money and Payments: The U.S. Dollar in the Age of Digital Transformation”Ʉ ;EWLMRKXSR &SEVH SJ Governors, January). 3 7II 'LVMWXSTLIV . ;EPPIV Ʉ“CBDC: A Solution in Search of a Problem?”ɄWTIIGL HIPMZIVIH EX XLI %QIVMGER Enterprise Institute, Washington (via webcast), August 5. 4 7II *IHIVEP 6IWIVZI &ERO SJ 7X 0SYMW Ʉ“Federal Reserve History: Creation of the Bretton Woods System,”Ʉ[IFTEKI 5 See Committee on the Global Financial System Ʉ“U.S. Dollar Funding: An International Perspective,” (PDF)Ʉ'+*7 4ETIVW &EWIP 7[MX^IVPERH '+*7 .YRI 6 8LIWI ƤKYVIW EVI XEOIR JVSQ 'EVSP &IVXEYX &EWXMER ZSR &IWGL[MX^ ERH 7XITLERMI 'YVGYVY Ʉ“The International Role of the U.S. Dollar,”Ʉ*)(7 2SXIW ;EWLMRKXSR Board of Governors of the Federal Reserve System, Oct. 6). 7 See Ethan Ilzetzki, Carmen M. Reinhart, and Kenneth S. Rogoff (2019), “Exchange Arrangements Entering the 8[IRX] *MVWX 'IRXYV] ;LMGL %RGLSV ;MPP ,SPH#űɄQuarterly Journal of Economics, vol. 134 (May), pp. 599-646. 8 See Bertaut, von Beschwitz, and Curcuru “International Role of the U.S. Dollar,” in note 6; and Emine Boz, Camila Casas, Georgios, Georgiadis, Gita Gopinath, Helena Le 1I^S %VREYH 1ILP ERH 8VE 2KY]IR Ʉ“Patterns in Invoicing Currency in Global Trade”Ʉ-1* ;SVOMRK 4ETIV WP/20/126 (Washington: International Monetary Fund, July). 9 For example, pass-throughs of exchange rate changes to 9 7 MRƥEXMSR EVI VIHYGIH QEXIVMEPP] [LIR XLI SZIV[LIPQing majority of U.S. imports are invoiced in U.S. dollars. 10 See Board of Governors, “Money and Payments,” p. 15, in note 2. 11 See Committee on the Global Financial System, “U.S. Dollar Funding,” in note 5. 12 The legal and reputational risks associated with noncompliance with requirements on anti-money laundering ERH GSYRXIVMRK XLI ƤRERGMRK SJ XIVVSVMWQ SJXIR VIWYPX MR ƤRERGMEP MRWXMXYXMSRW GLSSWMRK XS FI ZIV] GEYXMSYW including by requiring manual intervention in cases of uncertainty, which decreases speed and increases costs of cross-border payments. See Financial Action Task *SVGI ɄCross Border Payments: Survey Results on Implementation of the FATF StandardsɄ 4(* Ʉ 4EVMW *%8* October). Also, because stablecoins are pegged to the dollar, they may increase rather than reduce the primacy of the dollar abroad, since demand for stablecoins increases demand for dollar-denominated reserve assets held by the stablecoin issuer. Conclusion The ongoing debate over the risks and benefits of a CBDC is important, and I am happy to continue to engage with both advocates and skeptics of CBDCs. But, for the reasons I have laid out, I don’t think there are implications here for the role of the United States in the global economy and financial system. We should instead focus and debate the salient CBDC-related topics, like its effects on financial stability, payment system improvements and financial inclusion. HB 13 7II *MRERGMEP 7XEFMPMX] &SEVH ɄEnhancing Cross-border Payments: Stage 3 RoadmapɄ 4(* Ʉ &EWIP Switzerland: FSB, October). 14 Several recent studies set forth similar perspectives, including the following: U.S. Department of the 8VIEWYV] ɄThe Future of Money and Payments: Report Pursuant to Section 4(b) of Executive Order 14067Ʉ 4(* Ʉ ;EWLMRKXSR (ITEVXQIRX SJ XLI 8VIEWYV] September); and Bertaut, von Beschwitz, and Curcuru, “International Role of the U.S. Dollar,” in note 6. 15 7II 'LVMWXSTLIV . ;EPPIV ɄŰ6IƥIGXMSRW SR Stablecoins and Payments Innovations,”ɄWTIIGL HIPMZIVIH at «Planning for Surprises, Learning from Crises,» 2021 Financial Stability Conference, Cleveland (via webcast). 16 See, for instance, Maurice Obstfeld and Alan M. Taylor ɄGlobal Capital Markets: Integration, Crisis, and GrowthɄ 2I[ =SVO 'EQFVMHKI 9RMZIVWMX] 4VIWW
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