Federal Reserve Chair Jerome Powell told Senate lawmakers on Jan. 11 that there’s nothing standing in the way for privately issued stablecoins to co-exist alongside a potential Fed central bank digital currency (CBDC).
During a hearing on Powell’s confirmation for a second term at the helm of the Fed, he was asked by Sen. Pat Toomey (R-Pa.) whether there was room for a potential Fed issued digital currency to exist alongside a privately issued stablecoin.
“If Congress were to authorize and the Fed were to pursue a central bank digital dollar … is there anything about that that ought to preclude a well-regulated, privately issued stablecoins from co-existing with a central bank digital dollar?” Toomey asked.
“No, not at all,” Powell replied, noting also that the Fed plans to release a report on CBDCs in the near future.
The Fed has not committed to launching a digital dollar, though it has been exploring the issue. Moves by multiple countries adapting their regulatory frameworks for crypto-assets and looking to roll out their central bank-issued digital currencies have prompted the Fed to ramp up its efforts in this space.
China’s central bank is pushing to become the first major monetary institution to issue a CBDC, part of its drive to internationalize the yuan and reduce dependence on the dollar-dominated global banking system.
“If realized, such arrangements could allow Chinese firms and their trading partners to reduce usage of the U.S. dollar for cross-border transactions and circumvent payments channels that the U.S. government can shut off to entities it sanctions for national security reasons,” wrote Robert Greene, a scholar at the Carnegie Endowment for International Peace’s Cyber Policy Initiative and Asia Program, in a recent piece about Beijing’s ambitions for its central bank issued digital yuan.
John Mac Ghlionn, a researcher and Epoch Times contributor, argued in a recent op-ed that a digital dollar is needed to counter the Chinese Communist Party’s (CCP) moves.
“As the United States is the only country capable of countering the CCP, a digital dollar is a must,” Ghlionn wrote.
“A world dictated by Chinese leaders will benefit no one but the elites in Beijing,” he continued. “Unless the United States launches a digital dollar in the near future, there is reason to fear that the Fourth Industrial Revolution will have all the hallmarks of a dystopian novel.”
Powell addressed the question of a Fed issued digital dollar for use by the general public in May 2021 (pdf), saying he thinks it’s important for any CBDC to “serve as a complement to, and not a replacement of, cash and current private-sector digital forms of the dollar, such as deposits at commercial banks.”
“The design of a CBDC would raise important monetary policy, financial stability, consumer protection, legal, and privacy considerations and will require careful thought and analysis—including input from the public and elected officials,” he added.
A recent report from the President’s Working Group on Financial Markets (PWG) said that stablecoins could be used widely in the future as a means of payment by households and businesses, but that appropriate oversight is needed to address risks.
“The potential for the increased use of stablecoins as a means of payments raises a range of concerns, related to the potential for destabilizing runs, disruptions in the payment system, and concentration of economic power,” the Treasury Department said in a statement.
The PWG recommended that Congress pass legislation that would guard against risks, including that stablecoin issuers be treated as depository institutions insured by the Federal Deposit Insurance Corporation (FDIC), and that custodial wallet providers should be subject to appropriate federal oversight.