Morgan Stanley says changing to Proof of Stake might not solve Ethereum's scaling problems. An equity strategist for Morgan Stanley claims Ethereum beacon-mainnet merge will cause demand for graphics processors to plummet in the coming months. The Ethereum platform has been undergoing a parade of testnets preparing for its merge with Beacon Chain. This merge is a move to facilitate the blockchain's transition from operating a Proof of Work model, to Proof of Stake. The PoW consensus model understandably…
Lael Brainard – vice chairwoman of the Federal Reserve – showed support for a US CBDC at the House Financial Services Committee hearing on Thursday. She believes one could bring more efficiency to the financial system, but Republicans are staunchly opposed.
Potential Need for a CBDC
In advance of the hearing, Brainard issued a written statement discussing the pros and cons of a CBDC in the United States. When framing her argument, she first acknowledged the recent instability of private market stablecoins.
TerraUSD (UST) was the obvious pick. Formerly the third-largest stablecoin, it lost its dollar peg and devalued to just $0.07 this month. In the panic surrounding its collapse, Even Tether (USDT) briefly deviated from its intended dollar value.
“These events underscore the need for clear regulatory guardrails to provide consumer and investor protection,” noted Brainard.
Conversely, Brainard argues that a CBDC could provide better protection against such bank-run like behavior and instability. It could also unify the payment system across the country, negating the inefficiencies involved with having multiple private monies in the economy.
The vice chair’s words indicate a response that many in the crypto community expected in the wake of Terra’s collapse. Only a day after its implosion, Treasury Secretary Janet Yellen claimed that its failure underscored a need for stablecoin regulations.
That said, Brainard does not necessarily mean replacing private stablecoins with a CBDC. Mimicking Fed chairman Jerome Powell’s comments in January, she says their relationship could prove complimentary:
“[A] CBDC could coexist with and be complementary to stablecoins and commercial bank money by providing a safe central bank liability in the digital financial ecosystem,” she argued. In her view, it could mimic the current relationship between commercial bank money and physical cash.
Republicans Oppose the Move
“Crypto,” and “CBDCs” seem to have an inverse relationship in the walls of parliament. While the former is often disparaged as a tool of illicit finance by Democrats, CBDCs are primarily the target of Republican ire.
During Thursday’s hearing, the committee’s leading Republican Patrick McHenry asserted that there are no compelling cases for CBDC issuance. Earlier this week, Republican Senator Ted Cruz called CBDCs a “horrible idea” (even though he personally invests in Bitcoin).
McHenry was also leery of Brainard’s refusal to clearly denounce the issuance of a CBDC without new law. “It is important for us to have strong support from both the executive branch and congress and ideally that would come in the form of authorizing legislation,” said Brainard on the matter.
Republican Bill Posey offered further criticism: “If working people got paid in CBDC, could it threaten the ability of commercial banks using their deposits to fund lending activities?” he asked.
In March, President Biden issued an executive order pushing for “urgent” CBDC research and development. He posited that US action on the matter could make or break their currency’s world reserve status. At present, over 90% of central banks are reportedly exploring CBDCs.