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Federal Reserve Chairman Jerome Powell on Wednesday challenged the need for cryptocurrencies if it were to issue its own central bank digital currency.
“You wouldn’t need stablecoins, you wouldn’t need cryptocurrencies, if you had a digital US currency,” the Fed chief said. “I think that’s one of the stronger arguments in its favor.”
Stablecoins are a type of cryptocurrency pegged to an asset such as a fiat currency or a precious metal.
“We have a tradition in this country where the public’s money is held in what is supposed to be a very safe asset,” Powell said. “That doesn’t exist for stablecoins, and if they’re going to be a significant part of the payments universe…then we need an appropriate framework, which frankly we don’t have.”
Powell was responding to a question from Rep. Stephen Lynch during the House Financial Services Committee testimony on whether a “swift action” on the Fed’s part of issuing a central bank digital currency would “calm” the markets.
A CBDC is a type of central bank liability – similar to the US dollar – issued in digital form, which could be used by the general public.
A digital currency from the Fed would enter a packed space. There are over 8,500 cryptocurrencies, according to data from CoinGecko, boasting a market capitalization of $1.4 trillion. At its peak, the entire ecosystem was worth $2 trillion.
In May, Powell revealed that the Fed has taken further steps in exploring a digital currency and will be releasing a discussion paper this summer outlining its thinking on digital payments.
He said the paper is meant to “stimulate broad conversation” on issues related to payments, financial inclusion, data privacy, and information security.
Powell, like other central bank heads around the world, has raised concern over the volatility of cryptocurrencies.
The Fed warned about cryptocurrency volatility for the first time in its semi-annual Monetary Policy Report published on July 9.
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