- Fed chair Jerome Powell says that regulated stablecoins issued by private entities could coexist alongside a U.S CBDC.
- He also told Congress that the Fed is almost through with a report that it previously claimed would be published by September last year on crypto and CBDCs.
A U.S Fedcoin has been touted as the biggest impending threat to Bitcoin and other cryptocurrencies in the U.S. But according to the chair of the Federal Reserve, we don’t have to choose one and can do both. Jerome Powell further promised to publish a report the Fed has been working on regarding cryptocurrencies in the coming weeks.
Powell was speaking during a confirmation hearing before the Senate Banking Committee on Tuesday, January 11. He addressed key economic and financial issues including the promised wind-down of the Fed’s capital injection into the market and a hike in interest rates. Crypto also inevitably came up, and while the Fed has mostly been anti-crypto, Powell gave a glimmer of hope on the future of the sector in the U.S.
Senator Pat Toomey asked Powell “If Congress were to authorize and the Fed were to pursue a central bank digital dollar, is there anything about that that ought to preclude a well-regulated, privately issued stable coin from co-existing with a central bank digital dollar?”
“No, not at all.” Powell, who was recently nominated for a second term atop the Fed by President Joe Biden, told Senate.
Powell also revealed that the Fed is edging closer to publishing its report on digital currencies and CBDCs, a report that’s been coming for months. Back in July last year, the Fed had claimed that the report would be ready by September. However, it was pushed ahead again and despite pledges that it would be released before the end of the year, it wasn’t.
Powell told Senate:
We didn’t get it to quite where we needed to get it. Powell said about the report’s delays. But it’s effectively there now, it’s within weeks [that]we will be publishing it.
Will the Fedcoin end stablecoins?
While Powell claimed that the Fedcoin would exist alongside regulated stablecoins, this relationship would be much more complex than he made it out to be.
By nature, a CBDC is a digital representation of a fiat currency in a 1:1 ratio. The Fedcoin, as such, would be a digital U.S dollar. Stablecoins are no different, at least in theory. Take Tether for instance – it’s a digital representation of the U.S dollar, purportedly backed by an equivalent amount of USD in the bank (or other easily convertible assets as we came to find out recently).
The only difference between the Fedcoin and Tether would be the issuers. And when you take into account the trust issues that plague Tether, it’s easy to see why the Fedcoin could take up a chunk of Tether’s market share.
That’s not all, however. A November report by the President’s Working Group on Financial Markets recommended that all stablecoin issuers must be regulated like banks. This would subject Tether to the same regulations that banks like JPMorgan adhere to, and with Tether’s shaky corporate structure, this could prove almost impossible.
It would be safe to assume that current stablecoins like Tether would face a huge blow, some might even have to leave the U.S market. It would also see banks like JPMorgan issue their own stablecoins to fill the void.
As the banks try to catch up with the market, the Fedcoin would get all the time it needs to establish itself in the market.