FRB Governor Waller Says U.S. Dollar's Global Dominance Would Not Be Impacted by Issuance of a CBDC
Commentary by Steven Lofchie
Federal Reserve Board ("FRB") Governor Christopher J. Waller explained why the U.S. dollar is the dominant currency for cross-border financial transactions and said that such dominance would not be impacted if the United States issues a U.S. government-issued central bank digital currency ("CBDC").
In remarks at the Digital Currencies and National Security Tradeoffs symposium presented by the Harvard National Security Journal, Mr. Waller explained the reasons for the current dominance of the U.S. dollar, including the safety and stability of the currency, the ease of transferring it, the depth and liquidity of the U.S. financial markets and economy and the international trust in U.S. institutions and the rule of law. Mr. Waller argued that he did not believe any benefit would be provided from a U.S. CBDC, as none of those factors would be materially impacted by issuing one.
Mr. Waller also argued that neither a foreign CBDC nor a private stablecoin would have a material impact on the dominance of the U.S. dollar. Regarding China's CBDC specifically, Mr. Waller said that market participants might be discouraged from using such CBDC as it could give the Chinese government too much visibility into market transactions. Regarding private stablecoins, Mr. Waller emphasized that they were most commonly linked to the U.S. dollar and argued that they would therefore tend to increase, rather than reduce, demand for U.S. dollars.
Mr. Waller encouraged regulators to consider other relevant CBDC-related topics, including its use as an instant payment system, accessibility and potential impacts on financial stability.
Commentary
This is the first public statement by any U.S. government official that takes a measured view of the dangers (or lack thereof) of digital assets generally and of stablecoins and CBDCs in particular.
Mr. Waller's statement highlights a related issue of partisanship at the Financial Stability Oversight Council. The purpose of FSOC is purportedly to provide a broad spectrum of views as to threats to the U.S. economy. It is incapable of fulfilling this role because it is wholly composed of members of the ruling group and thus it seems to largely reinforce the administration's position on any issue (or to ignore issues that the administration would prefer to ignore, such as inflation or energy prices). If FSOC is to provide any value as the canary in the coal mine, it must be recomposed so that it is made up of members from across the political and economic spectrums.