Lorie K. Logan, who has recently been named as the next President and CEO of the Dallas Fed, believes “imagining that private and public money and payments could coexist will be helpful in policy making,” she said in a prepared speech at the New York Fed and Columbia SIPA Monetary Policy Implementation Workshop released Thursday.
- Logan thinks that central bank digital currencies (CBDCs) could lead to larger central bank balance sheets. Most of the global central banks are at least exploring whether to establish their own version of a digital currency to counter Bitcoin and other private currencies.
- “Digital innovation in money and payments is occurring for a reason—consumers, businesses, and financial market participants can benefit from around-the-clock, faster, and possibly programmable payments, both to reduce risk and to simplify financial transactions. Increased competition that results from new forms of money and payments could lower costs, increase service availability, and stimulate further innovation,” Logan highlighted.
- In addition, Harnessing the benefits of innovation to consumers and businesses, while maintaining a safe and effective monetary system, may require new legislation, changes to regulations and to supervisory approaches, and modernization of traditional payment systems. The specifics of the appropriate initiatives will vary by country. These developments could have significant implications, including for financial stability, national security interests, and international cooperation,” Logan Added.
- Speaking about stablecoins, she said that stablecoins backed by other instruments, such as high-quality liquid assets, could moderate growth in the central bank’s balance sheet relative to a stablecoin backed entirely by central bank reserves. However, she believes this structure would also give rise to liquidity risk for stablecoin issuers, which might in turn give rise to a need for a backstop source of funding.
- Logan currently heads the market operations for the New York Fed, where she manages the $9 trillion System Open Market Account. Her role in the Dallas Fed will commence on August 22.
- Concluding her speech, Logan said: “The innovation occurring in money and payments has the potential to alter the existing two-tier monetary system upon which current monetary policy implementation frameworks are designed. How things evolve from here is uncertain, and the impact of these innovations could be revolutionary, or more evolutionary. But imagining an environment in which new forms of private and public money and payments could coexist is helpful in adapting implementation frameworks that will enable central banks to continue to achieve their desired policy stance in the future.”
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