Jerome Powell – chairman of the Federal Reserve – appears to have reversed one of his previous positions on the relationship between CBDCs and stablecoins. Testifying in front of the US congress, he suggested that both could co-exist, without the former replacing the latter.
Allowing Stablecoins and CBDCs.
Powell discussed the possibility of a Federal Reserve issued CBDC during his renomination hearing on Tuesday. Republican Senator Pat Toomey – a known crypto advocate – asked if a Fed issued CBDC would preclude the existence of “well-regulated, privately issued stablecoins”.
“No, not at all,” responded Powell.
This is a far less hawkish attitude towards stablecoins than we heard from Powell last year. In July, he suggested that a CBDC’s primary benefit would be to replace crypto – including stablecoins. That said, Powell has no intention of banning other cryptocurrencies outright, setting the US regulatory approach apart from China’s.
Nevertheless, stablecoins are a hot topic among regulators right now. Both industry leaders and congresspeople presented conflicting viewpoints on the subject during a hearing last month. Whereas the industry considers stablecoins a compliment to the financial system, Maxine Waters suggested that they could be a threat to the US dollar. Some even suspect that stablecoins could be classified as securities.
Other questions exist about the practical utility of privately issued stablecoins if a CBDC existed. However, the issuance of a CBDC still seems a long way off. Powell has previously stated that he’d rather “do this right than do it fast,” leaving room for Tether, Pax, and USDC to operate in its absence.
The Fed plans to release a report investigating the pros and cons of a CBDC implementation within the next few weeks.
The most widely discussed topic during the hearing was inflation, which has become the Fed’s top priority since reaching near 40-year highs in November. Powell said that with inflation well above target, the economy “no longer needs or wants the very highly accommodative policies that we’ve had in place.”
The chairman continues to signal that the Fed will prioritize raising interest rates as soon as possible to combat the issue.