There’s nothing to be afraid of with stablecoins.
That’s the main message Randal Quarles, the vice chair for supervision at the Federal Reserve and a member of its board, delivered on June 28, surprising a DeFi community that’s become inured to getting dissed by the financial establishment. Quarles believes private-sector stablecoins are a worthy alternative to central bank-issued digital currencies.
“Stablecoins are an important development that raises difficult questions,” Quarles said in a speech to a bankers’ association in Sun Valley, Idaho. “In my judgment, we do not need to fear stablecoins.”
Stating that he was sharing his own views, Quarles said it was a mistake to assume that central bank digital currencies, or CBDC, were the only way forward for development of digital fiat. That’s an innovation the Federal Reserve is currently exploring. He noted that interest in a “digital dollar” had reached a fever pitch, and challenged one of the main arguments detractors have long made against stablecoins — that they represent a dangerous “creation of private money” that would undermine the central bank’s “monetary sovereignty.” The Fed official found that criticism “puzzling.”
“Our existing system involves — indeed depends on — private firms creating money every day,” he said. Elaborating on this theme, Quarles noted that under the fractional reserve system, commercial banks make loans and effectively “create money.”
Quarles’ comments carry great weight because he isn’t just a high Fed official — he’s also the chair of the Financial Stability Board, an international body that monitors and influences regulations in the world’s biggest economies.
Observing that “the general public already transacts mostly in digital dollars,” he also rebutted the argument that the advent of cryptocurrencies would diminish the primacy of the greenback. He said a global U.S. dollar stablecoin network could encourage use of the currency by making cross-border payments faster and cheaper, and it potentially could be deployed much faster and with fewer downsides than a CBDC.
“I think it’s inevitable that, as the global economy and financial system continue to evolve, some foreign currencies (including some foreign CBDCs) will be used more in international transactions than they currently are,” he said. “It seems unlikely, however, that the dollar’s status as a global reserve currency in international financial transactions will be threatened by a foreign CBDC.”