Fed Chair Jerome Powell Argues private stablecoins can co-exist with US CBDC

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On January 11, Federal Reserve Chair Jerome Powell told Senate lawmakers that nothing is stopping privately-issued stablecoins from coexisting with a potential Federal Central Bank (CBDC) digital currency.

Jerome Powell confirms that the digital currency issued by the Federal Reserve is in progress

Senator Pat Tomey (R-Pen) asked Powell during his second-term peg hearing as Federal Reserve Chair if there is a place for a future Fed digital currency to coexist with a privately issued stablecoin.

Tommy asked:

“Is there anything about that that should prevent a well-regulated, privately-issued stablecoin from coexisting with a central bank digital dollar if Congress permits and the Federal Reserve seeks a central bank digital dollar?”

Powell said that the Fed will release a study on crypto soon at the Senate Banking Committee meeting earlier this week. Senator Pat Toomey, the committee’s top Republican, questioned Jerome Powell during the hearing. “Not at all,” Powell replied, when asked if central bank digital currency would rule out creating “a well-regulated privately-issued stablecoin.”

While other countries continue to create their own digital currencies, the US monetary authority has yet to officially announce plans to introduce a digital dollar. Despite Powell’s note, it is unclear how private tokens would compete if the Federal Reserve issued a digital currency.

USDT, the largest stablecoin by market capitalization, stands at $78 billion. Source: TradingView

Stable coins have proven to be an important component of the cryptocurrency integration process, as investors frequently use their fixed price as a springboard to trade other digital currencies. However, the Federal Reserve and other US regulators have previously warned that stablecoins require stricter regulation and should only be issued by authorized 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 silent on whether it plans to introduce its own digital currency, similar to the Chinese yuan, the central bank and other US financial regulators have previously stated that stablecoins require additional supervision and must be issued by banks.

Related article | Central bank digital currencies coexist with cash payments, according to Fed Chair Powell

US President’s Working Group on Financial Markets to Regulate Stable Currencies

Stablecoins could be widely used 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 adequate regulation is needed to manage risks.

The Treasury Department said in a statement:

“The prospect of the increased use of stablecoins as a means of payment raises a range of concerns regarding the potential for destabilization processes, disruptions in the payment system, and the concentration of economic power,”

The PWG proposed that Congress put in place laws to protect against risks, such as treating stablecoin issuers as depository institutions covered by the FDIC and subjecting custodial wallet providers to adequate federal regulations.

Powell was present, as were Secretary of the Treasury Janet Yellen and SEC Chairman, Gary Gensler, who expressed his reservations.

Related article | Fed Powell Doesn’t Think About Crypto Risks to Financial Stability

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