“We have no intent to ban cryptocurrency,” Federal Reserve (Fed) Chairman Jerome Powell replied before the House Financial Services Committee after Rep. Ted Budd (R, NC) asked him if like the Central Bank of China, the Fed intended to “ban or limit the use of cryptocurrencies.”
Powell had to rephrase one of his past positions when Rep. Budd quoted his words, “You wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital US currency.”
The Fed chairman told Rep. Budd to take “the word ‘cryptocurrency’ out of that sentence,” as he tried to explain that digital currencies issued by a central bank could fulfill stablecoin functions, before being interrupted to reiterate his intention not to ban cryptocurrencies.
Although Powell clarified that the Fed has no intention of banning cryptocurrencies, he assured that “stablecoins are like money market funds, they’re like bank deposits, but they’re, to some extent, outside the regulatory perimeter and it’s appropriate that they be regulated.”
So-called stablecoins function as a digital asset-backed by other collateral, including fiat money, cryptocurrencies such as Bitcoin, or an algorithmic backing that determines the number of tokens (money) in circulation in the market. Some stablecoins such as Tether or USD Coin have one-to-one convertibility with the dollar.
At cryptocurrency brokers traders exchange their more volatile cryptocurrencies, such as Bitcoin or Ether, for stable coins whose low volatility allows crypto-investors to not lose the value of their profits while they are not trading in the market.
Considering a digital dollar
In the past, Powell has indicated that the Fed was studying stablecoins and, in fact, appointed a former cryptocurrency pioneer in the brokerage world, Sunayna Tujeda, to support the Fed’s efforts to implement a digital dollar.
Establishing a digital dollar has been in the Fed’s sights since last year, until May when the central bank announced an official study on forming a digital dollar.
The Boston Fed along with MIT are evaluating the possibility and desirability of the central bank issuing its own digital currency. Lael Brainard, who sits on the Fed’s Board of Governors, has been particularly enthusiastic about the initiative. Other members of the Fed, such as Vice Chairman Randal Quarles, are more skeptical.
In an interview with Bloomberg, Powell commented that “because we’re the world’s principal reserve currency, we don’t need to rush this project, and we don’t need to be first to market,” referring to the possibility of the Fed implementing its own digital currency.
China has already started the implementation of its own digital currency, which, unlike cryptocurrencies, does not have the guarantee of anonymity. At present, the Chinese central bank is implementing pilots of its digital currency in Shanghai, Chengdu and Beijing.