Fed Chair Jerome Powell Argues private stablecoins can co-exist with US CBDC
On Jan. 11, Federal Reserve Chair Jerome Powell told Senate legislators that nothing prevents privately issued stablecoins from coexisting with a prospective Fed central bank digital currency (CBDC).
Jerome Powell Confirms Fed-issued Digital Currency Is Underway
Sen. Pat Toomey (R-Pa.) asked Powell during his confirmation hearing for a second term as Fed chairman whether there was place for a future Fed-issued digital currency to coexist with a privately issued stablecoin.
“Is there anything about that that should preclude a well-regulated, privately issued stablecoin from coexisting with a central bank digital dollar if Congress authorizes and the Fed pursues a central bank digital dollar?”
Powell said the Fed would publish a study on digital currencies soon at a Senate Banking Committee meeting earlier this week. Senator Pat Toomey, the top Republican on the panel, questioned Jerome Powell during the session. Powell responded, “No, not at all,” when asked if a CBDC would exclude the formation of a “well regulated, privately issued stablecoin.”
While other countries continue to create their own CBDCs, the US monetary authority has yet to make an official announcement about plans to introduce a digital dollar. Despite Powell’s remark, it’s unclear how private tokens would compete if the Fed issued a digital currency.
USDT, the largest stablecoins by market cap, stands at $78 billion. Source: TradingView
Stablecoins have proven to be an important component of the cryptocurrency integration process, since investors frequently utilize their steady rate as a starting point for trading other digital currencies. However, the Federal Reserve and other US watchdogs have previously warned that stablecoins require more stringent regulation and should only be issued by licensed entities such as banks. Financial agencies should have the same jurisdiction to regulate stablecoin issuers as banks, according to the President’s Working Group on Financial Markets.
While the Fed has remained tight-lipped about whether it plans to introduce its own digital currency, similar to China’s yuan, the central bank and other US financial regulators have previously stated that stablecoins require additional supervision and should be issued by banks.
U.S. President’s Working Group on Financial Markets To Regulate Stablecoins
Stablecoins could be used widely in the future as a means of payment by individuals and businesses, according to a new report from the President’s Working Group on Financial Markets (PWG), but sufficient regulation is required to manage risks.
“The potential for the increased use of stablecoins as a means of payments raises a range of concerns, related to the potential for destabilizing runs, disruptions in the payment system, and concentration of economic power,”
The PWG suggested that Congress establish laws to protect against dangers, such as treating stablecoin issuers as depository institutions covered by the Federal Deposit Insurance Corporation (FDIC) and subjecting custodial wallet providers to adequate federal regulation.
Powell was present, as was Treasury Secretary Janet Yellen and SEC Chair Gary Gensler, the latter of whom expressed reservations.