Federal Reserve Chair Jerome Powell has explicitly acknowledged that stablecoins are a form of money. He made the bold admission in the course of comments delivered Wednesday during the US House Financial Services Committee’s semiannual meeting on monetary policy.
Powell’s remarks took many by surprise. Especially given the harsh stance of his colleagues in the government toward cryptocurrency, and stablecoins in particular. The Securities and Exchange Commission (SEC) wages an escalating war against virtually all cryptocurrencies. Classifying them as securities that should rightfullly fall under SEC control.
Stablecoins Are Real Money
“We see stablecoins as a form of money,” Powell said during his Wednesday remarks. The admission quickly provoked surprised reactions from crypto and financial commentators.
In a regulatory landscape where current and former SEC personnel routinely attack crypto as a fraud and a Ponzi scheme, Powell sounded an iconoclastic note. He contradicted recent remarks from SEC head Gary Gensler and others. Last month, former SEC official John Reed Stark called the stablecoin Tether a “mammoth house of cards.”
Stark, a former chief of the SEC’s division of Internet Enforcement, said he believes stablecoin could be “the next domino to fall.”
For his part, Powell was quick to qualify his admission. He said bluntly that the crypto market will never usurp the role of his organization, the Fed, in setting interest rates and other fiscal policy. He offset his admission about stablecoin by saying the Fed will always be “the main source of trust behind money.”
“Stablecoins essentially borrow that trust from the underlying issuer, and in many cases, these are dollar stablecoins, so they’re really borrowing that trust,” he said.
He called stablecoins private forms of currency. Powell added that they may experience runs if their reserves do not contain enough assets of high quality. Here, Powell suggested, is where regulation can and should come into play.
Stablecoins as a Hedge
Powell’s comments at least implicitly acknowledged the value of crypto as a hedge against volatility and rising inflation. He made his remarks in the context of testimony that described inflation as a serious and chronic problem.
“The Fed’s monetary policy actions are guided by our mandate to promote maximum employment and stable prices for the American people. My colleagues and I are acutely aware that high inflation imposes hardships as it erodes purchasing power,” he said.
This is especially the case for those trying hard to afford the basics. Like housing, food, and transport, Powell stated.
Powell said he and his colleagues share a commitment to get inflation back down. The target rate at present is 2%, he said.
“Since early last year, we have raised our policy rate by five percentage points. We have been seeing the effects of our policy tightening and demand in the most interest rate-sensitive sectors of the economy,” he said.
“The economy is facing headwinds from tighter credit conditions for households and businesses. . . . [They] are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain.”
Hence, the committee’s decision today to keep the federal funds rate at 5% to 5.25% is in all likelihood a short-term measure. In the midst of the macro trends, further hikes are on the way in the near future, he said.
“Nearly all committee participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year.”
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