U.S. Federal Reserve Chair Jerome Powell said that a dollar-based CBDC could undercut the need for cryptocurrencies and stablecoins.
Federal Reserve Chair Jerome Powell, speaking at a congressional hearing, made a case for a U.S. central bank digital currency (CBDC). When asked about a potential U.S. digital currency, he said that it could reduce the need for private cryptocurrencies like bitcoin and stablecoins. Powell responded to several questions regarding cryptocurrencies, which is just one part in a broad general review of the market by the nation’s authorities.
Powell was speaking to The House of Representatives Financial Services Committee. The committee members asked if a CBDC would be better than having multiple stablecoins and cryptocurrencies, to which he responded in the affirmative.
He stated that the Federal Reserve officials would soon be examining a digital payments system through a discussion paper. The paper may be released in September, with Powell adding that it will be important in determining if the U.S. should issue a CBDC.
When asked if a CBDC would be better, Powell said,
“I think that may be the case and I think that’s one of the arguments that are offered in favor of digital currency. That, in particular, you wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital U.S. currency – I think that’s one of the stronger arguments in its favor.”
The Fed Reserve Chair also recommended that a regulatory framework be set up for stablecoins, if they are going to be a significant part of the payments universe. He does not seem to think that typical cryptocurrencies will come to act as a major means of payment.
Stablecoins are proving tough for regulators
Powell is not the only one promulgating a regulatory framework for stablecoins. The Bank for International Settlements (BIS), a global organization, has done the same and also sees the same challenges arising from stablecoin growth.
Obviously, governments are largely opposed to the idea of cryptocurrencies and stablecoins entering their payments system. But there is little that can be done about them on a large scale, given the decentralized nature. This is one of the reasons governments are so keen on CBDCs — they have some of the features of cryptocurrencies, but can also be kept under their control.
Stablecoins and the likes of Facebook’s Diem have governments worrying that there will be a breach of sovereignty. So there is this attempt to find a middle ground, which is proving to be challenging as the technology is still relatively new.
Nonetheless, governments are diverting all resources towards the matter of regulation. Centralized exchanges appear to be the current major target, with several countries targeting big-name exchanges. Binance appears to be taking the biggest hit so far, though others have also faced scrutiny.