On Jan. 11, Federal Reserve Chairman Jerome Powell told Senate lawmakers that nothing will prevent privately issued stablecoins from coexisting with a future Fed Central Bank (CBDC) digital currency.

Jerome Powell confirms that the Fed-issued digital currency is underway

Senator Pat Toomey (R-Pa.) Asked Powell during his confirmation hearing for a second term as Fed chairman if there was room for a future Fed-issued digital currency that could coexist alongside a privately issued stablecoin.

Toomey asked:

“Is there anything that should prevent a well-regulated, privately-issued stablecoin from coexisting with a digital central bank dollar if Congress approves it and the Fed goes for a digital central bank dollar?”

Powell said the Fed will shortly release a study on digital currencies at a meeting of the Senate Banking Committee earlier this week. Senator Pat Toomey, the Republican chief on the panel, questioned Jerome Powell during the session. Powell replied, “No, not at all” when asked if a CBDC would rule out the creation 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 of plans to introduce a digital dollar. Despite Powell’s comment, it is unclear how private tokens would compete if the Fed issues digital currency.

USDT, the largest stablecoin by market cap, is worth $ 78 billion. Source: TradingView

Stablecoins have proven to be an important part of the cryptocurrency integration process, as investors often use their constant rate as a starting point for trading other digital currencies. However, the Federal Reserve and other U.S. guard dogs have previously warned that stablecoins require stricter regulation and should only be issued by licensed entities such as banks. Financial authorities should have the same level of responsibility for regulating stablecoin issuers as banks, according to the president’s working group on financial markets.

While the Fed has still kept silent about the introduction of 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 should be issued by banks.

Related article | CBDCs are said to coexist with cash payments, said Fed chairman Powell

US President’s Working Group on Financial Markets to Regulate Stablecoins

Stablecoins could be widely used as a means of payment by individuals and companies in the future, according to a new report by the President’s Working Group on Financial Markets (PWG), but sufficient regulation is required to manage risk.

The Treasury Department said in a statement:

“The potential for increased use of stablecoins as a means of payment raises a number of concerns related to the potential for destabilizing runs, disruptions in the payment system and the concentration of economic power.”

The PWG proposed that Congress enact laws to protect against threats, such as treating stablecoin issuers as custodians covered by the Federal Deposit Insurance Corporation (FDIC) and subjecting custodian providers to appropriate federal regulation.

Powell was in attendance, along with Treasury Secretary Janet Yellen and SEC Chairman Gary Gensler, the latter of whom had reservations.

Related article | The Fed’s Powell doesn’t think crypto is putting financial stability at risk

Featured image by Gettyimages | TradingView charts


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