Fed Chair Powell Calls for an ‘Appropriate Regulatory Framework’ for Stable Coins

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Federal Reserve Chairman Jerome Powell told Congress this week that he would like to see a corner of cryptocurrency more tightly regulated.

“if [stablecoins] It’s going to be an important part of the payments world — which we don’t think crypto assets will be, but stablecoins might — and then we need an appropriate regulatory framework, which we frankly don’t have,” the Services Committee said on Wednesday.

To overcome the stigma of cryptocurrency volatility, stablecoins tie their values ​​to one or more other assets, such as sovereign coins. One selling point for stablecoins: facilitating cross-border payments.

The popularity of stablecoins has grown, taking some power out of major money market funds. Concern: Leaving unregulated and stable currencies may be more risky than advertised.

A chart from the Federal Reserve Bank of Boston, using data from Coin Metrics and iMoneyNet, indicates that stablecoins are growing in popularity against mutual funds in the main money market. Source: Federal Reserve Bank of Boston

“I think we have a tradition in this country where [if] Citing bank deposits or money markets as examples, Powell said on Wednesday that the public’s money is held in what is supposed to be a very safe asset, and we have a very strong regulatory framework.

On the second day of his testimony on Thursday, Powell made it clear that he was talking specifically about stablecoins and not other cryptocurrencies of a more speculative nature.

“It’s not that [cryptocurrencies] “They did not aspire to be a payment mechanism, they failed to become one, except for people who wish to remain anonymous, of course, for whatever reason,” the Fed chair told the Senate Banking Committee.

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Powell’s thinking about stablecoins could be relevant to the central bank’s conversation about cryptocurrencies as he contemplates launching his own digital US dollar.

The Fed chair said on Wednesday that somewhere around early September, the Fed will release a report that will start a public discussion about stablecoins, cryptocurrencies, and the prospects for central bank digital currencies.

The debate within the Federal Reserve over the crypto space has already intensified the Federal Reserve’s role in this space.

The story continues

Boston Fed President Eric Rosengren told Yahoo Finance on June 25 that he similarly would like to see more tightly regulated stablecoins, citing the risk of stablecoins collapsing during market pressures and “destabilizing short-term credit markets.”

But Fed Vice President Randall Quarles has openly questioned the need for a Fed-issued digital currency, arguing that private-sector stablecoins could better facilitate cross-border transactions.

“We don’t need to be afraid of stable currencies,” Quarles said on June 28. “The Fed has traditionally supported responsible private sector innovation.”

For his part, Powell said Thursday that he is “legally undecided as to whether or not the benefits are… [of a central bank-issued digital currency] outweigh the costs or vice versa.

Powell also stressed that if the Fed wanted to eventually issue a digital US dollar, it would want congressional approval of its legal ability to do so — which could include new legislation.

Brian Cheung is a reporter covering the Federal Reserve, economics, and banking at Yahoo Finance. You can follow him on Twitter @bcheungz.

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