According to a recent report, Jerome Powell (Federal Reserve Chair) commented that the U.S. central bank must introduce digital dollar. He argues that a central backed digital currency could demolish the private alternatives such as cryptocurrencies and stablecoins.
“If stablecoins are 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, which frankly we don’t have,”. Powell told the House Financial Services Committee on Wednesday.
He further added that “you wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital U.S. currency”.
In the month of May, Fed Governor Lael Brainard said that “households and businesses could be harmed by a fragmented payments system that featured too many stablecoins”. Possibilities are there that Fed officials may face intense debate. As they have to figure out whether to proceed with a digital version of the dollar.
Fed Vice Chair Randal Quarles said that he thinks any proposal for a CBDC would need to clear a “high bar before it gets carried away with novelty”.
Powell also clarified that he was specifically talking about stablecoins and not other cryptocurrencies that are more speculative in nature.
Why Powell wants digital dollar over stable coins
A “stablecoin” is a type of cryptocurrency whose value is pegged to another asset class, such as a fiat currency or gold, to stabilize its price. Stablecoins try to tackle price fluctuations by tying the value of cryptocurrencies to other more stable assets. The most widely used feature of a stable coin is its ability to perform cross border payments. With their growing popularity, they have squeezed out funds from prime money markets. Powell believes that if left unchecked they will become riskier.
Conversely, cryptocurrency’s are unpredictable in comparison to generally stable prices of fiat money, such as U.S. dollars, or other assets. Their volatility keeps them from becoming a payment mechanism except for people who desire anonymity.
Also Read: Fed’s Chair Powell met with Coinbase CEO Brian Armstrong and Paul Ryan on May 11
“I think we have a tradition in this country where, if the public’s money is held in what is supposed to be a very safe asset, we have a pretty strong regulatory framework,”. Powell said Wednesday, citing bank deposits or money markets as examples.
