‘Much More Willing’
Saying that the Fed’s ultra-easy monetary policy could pose risks to the stability of the financial system, Brainard said she’s “much more willing” than the central bank has been to use macro-prudential regulatory tools to try to prevent that from happening.
“There are some things that we could do there that we just really—there hasn’t been the will to do it in the past,” she said.
In March 2019, Brainard was the lone vote on the Fed Board in favor of requiring the nation’s biggest banks to hold an extra buffer of capital to make the financial system more resilient to shocks.
She also opposed other steps by the Powell Fed to alter bank regulations in ways that critics called risky. In a July 15 Senate Banking Committee hearing, two prominent progressive Democrats—panel head Sherrod Brown of Ohio and former presidential candidate Elizabeth Warren of Massachusetts—took Powell to task for those moves.
In her remarks in Aspen, Brainard also suggested that the Fed should press ahead toward the development of a central bank digital currency.
“There is urgency around the issue,” she said, noting that China and some other countries have already developed digital currencies of their own.
Not Sustainable
“The dollar is very dominant in international payments, and if you have the other major jurisdictions in the world with a digital currency, a CBDC (central bank digital currency) offering, and the U.S. doesn’t have one, I just, I can’t wrap my head around that,” she said. “That just doesn’t sound like a sustainable future to me.”
Her tone contrasted with that sounded by Powell to Congress in July. The Fed chief told lawmakers that he was “legitimately undecided” on whether the benefits of a digital dollar outweighed the costs, and said that it was far more important to get the decision right than to make it quickly.
Powell also played down the risk of the dollar losing its role as the world’s reserve currency now that China has established a digital unit of its own. “We’re not in danger of losing it, certainly not to China,” he said.
At the conclusion of her remarks in Aspen, Brainard received a warm round of applause.
The Economic Strategy Group is a bipartisan program of the Washington-based Aspen Institute. Its members include a number of former Treasury secretaries, including Hank Paulson and Lawrence Summers, former Fed Chairman Ben Bernanke, BlackRock Inc. chief executive officer Laurence Fink, and Brian Moynihan, CEO of Bank of America Corp.
This article was provided by Bloomberg News.