By Lindsay (NYSE:) Dunsmuir

(Reuters) – As the world moves rapidly towards electronic payments, a digitalized version of U.S. dollars could be a way to protect it as countries create their own. This was stated by Lael Brainard on Thursday, Federal Reserve Vice Chairman.

According to her, she said that “I do not believe we should take the global dollar’s status for granted” and added that in an era where major countries are shifting to digital currencies it was important to ask whether the United States would maintain the same level of dominance without issuing one.

Fed policymakers are still divided over the necessity of a central bank digital money (CBDC). They have recently completed a public consultation period that lasted four months and sought feedback from the public.

Brainard supports the idea. However, other Fed policymakers such as Governor Christopher Waller are less enthusiastic. Waller and others, like Christopher Waller are more skeptical. Waller points out that digital transactions have already made many billions of dollars and raised privacy concerns. As a whole, the Fed has stated that it will not start one without support from Congress and the White House.

Although she reiterated her belief that no decision had been reached, she acknowledged that both sides face risks. However, she noted that creating a digital money could be a way to help maintain financial stability in an increasingly digitalized world.

Brainard indicated that “we recognize the risks of not acting” during a hearing before the U.S. House of Representatives Financial Services Committee. Brainard also stated that even if one was established, it would still take five years to create a U.S. Digital Dollar.

This puts China behind other central banks around the world, such as the ECB and Bank of Japan. China currently has its own CBDC, and nine other countries have started one. According to the Atlantic Council think-tank, 87 more countries are considering the possibility.

CRYPTO MARKKETS DESERVE MORE REGULATION

As the market plummeted sharply after the fall of the major “stablecoin”, terraUSD, it has become clear that there are risks to loosely-regulated cryptocurrencies. Since November, the leading cryptocurrency fell more than 50%.

Brainard explained to the committee that “these events emphasize the need for clear regulator guardrails in order provide consumer and investor protections, protect financial instability, and ensure equal playing fields for competition and innovation throughout the financial sector.”

A CBDC, unlike cryptocurrencies which are usually run by private parties, would be issued by and backed the central bank. Brainard stated that the Fed must mitigate the risks of banks “disintermediating” the United States, given its centrality to the financial market. For example, it could limit the number of individuals who can hold and transfer money.

Brainard stated that her preference was for the U.S. dollar to not be interest bearing to avoid a decrease in deposits in other parts of the banking system.