Lael Brainard: Digital currencies, stablecoins, and the evolving payments landscape

Speech by Ms Lael Brainard, Member of the Board of Governors of the Federal Reserve System, at the conference "The Future of Money in the Digital Age", sponsored by the Peterson Institute for International Economics and Princeton University's Bendheim Center for Finance, Washington DC, 16 October 2019.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Technology is driving rapid change in the way we make payments and in the concept of "money." There is a long history of technological advances challenging the prevailing notions of money, from the trading of coins to the use of paper currency, to the electronic debiting and crediting of funds on the accounts of banks. Today, efforts by global stablecoin networks such as Facebook's Libra to establish the next chapter in the story of money are raising threshold questions about legal and regulatory safeguards, financial stability, and monetary policy. Because of its potential global reach, Facebook's Libra imparts urgency to the debate over what form money can take, who or what can issue it, and how payments can be recorded and settled.

Reassessing Money

Money has traditionally served three functions. Money facilitates payments as a medium of exchange, serves as a store of value that can be relied on for future use, and simplifies transactions by providing a common unit of account to compare the value of goods and services.

A decade ago, Bitcoin was heralded as a new kind of digital money that would address frictions in payments as well as serve as a unit of account and store of value without the need for centralized governance. Bitcoin's emergence created an entirely new payment instrument and asset class exchanged over a set of payment rails supported by distributed ledger technology. Distributed ledger technology may allow for a shared, tamper-resistant ledger that can be updated by anyone with sufficient computing power, in contrast to traditional recordkeeping systems built on a single ledger managed by a trusted central entity. But Bitcoin and some other early iterations of cryptocurrencies have exhibited extreme volatility, limited throughput capacity, unpredictable transaction costs, limited or no governance, and limited transparency, which have limited their utility as a means of payment and unit of account.