Fed Chairman Jerome Powell told the House of Representatives today that stablecoins should be subject to stricter regulations, similar to money market funds or bank deposits.
Powell was specifically asked by Rep. Anthony Gonzalez (R-OH) about tether, currently the most valuable stablecoin. Tether claimed that each coin was backed by one dollar, but that was proven wrong. rather, it is usually backed by commercial paper or debt. Powell said these assets were very liquid most of the time, but they weren’t during the recent financial crisis. He explained:
“The market is just disappearing. And then people want their money. Quite simply: These are economic activities that are very similar to bank deposits and money market funds and which must be regulated in a similar way.
Powell went on to say that if stablecoins are to be part of the payments universe, regulations must be put in place, as a regulatory framework “really doesn’t exist for stablecoins right now”.
He added that he doesn’t see volatile crypto assets as part of the payments universe in the future. Crypto assets were mentioned in the 75-page monetary policy report released last Friday. They only bring up one sentence that is mentioned in relation to “risky assets”:
“The price increase for a large number of crypto assets also partly reflects an increased willingness to take risks.”
MP Stephen Lynch (D-MA) said a central bank digital currency, or CBDC, would reduce the number of cryptocurrencies put on the market:
“You don’t need stablecoins, you don’t need cryptocurrencies if you had a digital US currency. I think that’s one of the strong arguments for it. “
Powell said a paper focusing on the benefits and risks of using CBDC in the U.S. will be out sometime in September.
He also responded to a question about record inflation rates in the US, saying they had “increased noticeably and are likely to remain elevated for the coming months before they weaken”.
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Powell maintained his earlier statements that the spike is temporary and that once certain markets, such as used cars, return to pre-pandemic conditions, it is likely to return to normal.
Powell will address the Senate Banking, Housing and Urban Affairs Committee tomorrow.