Federal Reserve Chairman Suggests Bitcoin Could Become Obsolete If US Digital Currency Exists

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Jerome Powell, US Federal Reserve Chairman Saul Loeb/AFP/Bloomberg

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During his testimony Wednesday afternoon before the US Financial Services Committee, Federal Reserve Chairman Jerome Powell made clear that while the central bank continues to study the feasibility of a digital dollar, it will not have to launch one or succumb to external pressures from others. Countries that are leaping forward.

In addition, he noted that when the United States launches a sovereign digital currency, it could render cryptocurrencies like bitcoin or stablecoins like tether unnecessary. “One of the arguments made in favor of a digital currency in particular is, you don’t need stablecoins, you don’t need crypto if you have a digital American currency,” Powell said when asked by representative Stephen Lynch (D-MA 8) about the potential benefits that a quick action could bring. By the Federal Reserve on digital currencies.

Currently, the Federal Reserve is working on a report expected to be published in September, but postponed from July, that seeks to expand on the benefits, risks, and considerations to consider when it comes to forms of digital payments, such as crypto-assets, stablecoins, and the formation of a central bank digital currency. This builds on the work the Federal Reserve did last year when it partnered with the MIT Digital Currency Initiative to explore the idea of ​​a central bank digital currency.

“This whole set of issues and push mechanisms, which we believe are at a critical stage, in terms of appropriate regulations and in the case of CBD, is setting real questions for the public to answer about what it could do, what the cost and benefits of that would be.” Powell says about what exactly the study will cover.

However, a strong argument can be made that the United States is lagging behind when it comes to developing a central bank digital currency. China is getting close to implementing the digital yuan, last year the Bahamas launched its first central bank digital currency, and the European Central Bank today launched the next phase of its digital euro project. In fact, according to a study conducted by the Bank for International Settlements in January 2021, 86% of central banks have begun exploring digital central bank currencies in some form or form.

Some lawmakers have not lost sight of these developments. During his questioning, Representative Lynch expressed concerns to Powell that if the Federal Reserve took too long to explore the idea of ​​central bank digital currencies, the United States might inadvertently abandon its reserve currency status.

However, Powell remains consistent that the United States’ reserve currency status has no other competitor. “The United States is the reserve currency. There is no really good competitor because all the things that you need to be a reserve currency have the United States.” As for getting into digital central bank currencies, Powell warns that there are risks in addition to the benefits, but notes that it depends on each country’s circumstances. “I think it’s more important to do it right, rather than do it quickly,” Powell adds.

Finally, Representative Patrick McHenry (R-NC 10th) also questioned Chairman Powell regarding any concerns he might have about the implementation of digital assets such as stablecoins, which grew in popularity until Visa announced that it would settle payments in USDC, a rival to industry leader Tether. .

In response, Powell compared stablecoins to money market funds and even bank deposits but without the regulations that both adhere to. Powell notes that the US has historically had a strong regulatory framework for other assets such as money market funds, but digital assets such as stablecoins have limited regulations. “That doesn’t really exist for stablecoins, and if they are going to become an important part of the payments world, which we don’t think it might be crypto assets or even stablecoins, we need a proper regulatory framework that you don’t.” Powell says.

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