NEW YORK: Federal Reserve Chair Jerome Powell on Wednesday (Jul 14) said one of the stronger arguments for the US central bank to set up a digital currency is that it could undercut the need for private alternatives such as cryptocurrencies and stablecoins.
Asked during a congressional hearing if having a digital currency issued by the Fed would be a more viable alternative than having multiple cryptocurrencies or stablecoins emerge in the payments system, Powell said he agreed.
“I think that may be the case and I think that’s one of the arguments that are offered in favour of digital currency,” Powell said during a hearing before the US House of Representatives Financial Services Committee. “That, in particular, you wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital US currency – I think that’s one of the stronger arguments in it’s favour.”
Fed officials will be broadly examining the digital payments universe in a discussion paper that could be released in early September, Powell said. He described it as a key step that accelerates the Fed’s efforts to determine if it should issue its own digital currency.
Powell said he was sceptical that crypto assets would become a main payments vehicle in the United States but said stablecoins might gain more traction. However, he said more regulation is needed before stablecoins could take on a bigger role in the financial system.
“We have a pretty strong regulatory framework around bank deposits, for example, or money market funds,” Powell said. “That doesn’t exist currently for stablecoins, and if they’re going to be a significant part of the payments universe – which we don’t think crypto assets will be but stablecoins might be – then we need an appropriate regulatory framework.”