Stablecoins and CBDCs: Private Vs. Public Monetary Innovation | The Node – CoinDesk

In a statement to the Utah Bankers Association Annual Convention, Quarles said that privately issued stablecoins (or assets typically pegged to fiat currencies underwritten by a bundle of other financial instruments) could help solve some of the inefficiencies and inequalities in the current payments system. He is intrigued by the instantaneous and cross-border settlements offered by a blockchain-based technology. 

“I read [Quarles’] speech as basically a free market-oriented person making the best case they can to let private actors continue doing what they’re doing and to hold off on any public alternative,” Willamette University College of Law professor Rohan Grey said in an email. “That’s what links the enthusiasm for stablecoins with the pessimism towards CBDCs, in my opinion.” (Grey has argued for an open-source approach to a digital dollar.)

According to Quarles, CDBCs could put more stress on the U.S. banking system and pose cybersecurity risks. They might also limit competition between banks that benefits consumers. On a practical level, there may be a host of legislative roadblocks and administrative costs to setting one up. These are just a few of his concerns. Crypto pundits have become anxious about CBDC privacy, with some calling them state-mandated spyware. 

But Quarles’ quickly responded to his own questions: “The Federal Reserve has traditionally supported responsible private-sector innovation.” What’s more, he said, “Our existing system involves – indeed depends on – private firms creating money every day.”

That growth was entirely a form of private-sector money creation, giving families the ability to buy now and pay later. There are many criticisms of this debt-driven system – some even pointed to by Quarles – but it’s impossible to say it wasn’t a revolution. 

Grey’s line is to advocate for strong consumer protections in face of private-sector money creation. He argues that stablecoins should be regulated as deposit takers. Moreover, a large part of the Federal Reserve’s mandate has been to limit the efforts of “shadow banks to engage in traditional banking activity without proper regulation.”