Federal Reserve Chair Jerome Powell said on Wednesday (July 14) that a digital currency developed by the U.S. central bank could undercut the need for private alternatives such as cryptocurrencies and stablecoins.
Asked during a congressional hearing if having a digital currency issued by the central bank would be a more viable alternative than having multiple cryptocurrencies or stablecoins, Powell said he agreed. (A stablecoin is a cryptocurrency that pegs its value to a conventional currency such as the U.S. dollar).
“I think that may be the case and I think that’s one of the arguments that are offered in favor of digital currency,” Powell said during a hearing before the U.S. House of Representatives Financial Services Committee. “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 U.S. central bank is exploring the digital payments universe in a discussion paper that could be released in early September, Powell said. He described it as a key step that accelerates the Fed's efforts to determine if it should issue a central bank digital currency.
Powell said he was skeptical that cryptocurrency assets would become a main payments vehicle in the United States but said stablecoins might gain more traction. However, he said more regulation is needed before stablecoins could take on a bigger role in the financial system.
“We have a pretty strong regulatory framework around bank deposits, for example, or money market funds," Powell said. “That doesn’t exist currently for stablecoins, and if they’re going to be a significant part of the payments universe - which we don’t think crypto assets will be but stablecoins might be - then we need an appropriate regulatory framework.”
Powell also reiterated that if the Federal Reserve were to move forward with developing a digital currency it would consult with Congress and the public. He repeated his view that as the holder of the world's reserve currency, it would be more important for the United States to “get it right” than to move quickly.
