The Chairman of the Federal Reserve, Jerome Powellwas consulted in the United States Congress about the effect that the issuance of a ‘digital dollar’. “I have never understood the valuation of those (non-dollar-based cryptocurrencies),” Powell responded.
Powell appeared before the Financial Services Committee of the United States House of Representatives, in which he answered some questions regarding the monetary policy that the entity he directs will follow. US congressman Stephen Lynch expressed concern if a digital dollar issued by the entity could drive Bitcoin and other crypto assets to zeroaccording to André Beganski in Decrypt.
“I am concerned about a lot of these stablecoins and other cryptocurrencies,” Lynch said. “Do they zero out when we come up with a CBDC (Central Bank digital currency) that has all the faith and credit of the United States behind it?“
The Fed has explored the possibility of issue a digital dollar for yearspublishing research since 2016. The CBDC they are similar to the digital tokens used today, like stablecoins, that they track the price of a fiat currency, but are managed by their respective governments instead of being issued by private companies on decentralized networks.
Powell stated that it is not clear to him why any cryptocurrency that is not “based on the credibility of the dollar” like Bitcoin or Ethereum has any value, regardless of the launch of a CBDC. He refrained from commenting on how they might be affected by a CBDC as a result.
“I’ve never understood the valuation of those,” Powell noted of the coins that “have no intrinsic value, but are nevertheless exchanged for a positive number.”
He also suggested that it is difficult to judge how stablecoins would be affectedciting a lack of regulation in the United States that makes the reserves of some stablecoins opaque.
Stablecoins like Tether have faced penalties in the past for making false claims about their token’s backing. And last month Paxos said he was preparing for a possible Securities and Exchange Commission lawsuit on its Binance-branded BUSD stablecoin.
The legislation that would provide a regulatory framework for stablecoins it has been introduced on Capitol Hill multiple times, but so far each bill has failed to gain momentum. He collapse last summer of the UST of eartha so-called algorithmic stablecoin that held its value through a code rather than being backed by assets, created a renewed urgency among legislators to establish rules of conduct.
Eleven countries have already launched a CBDC and almost 90 countries are testing, developing or researching a CBDC, according to the Atlantic Council’s CBDC Tracker. Lynch asked Powell for an update on the Federal Reserve’s timeline for the possibility of throw one too.
“I can’t give you a date,” Powell replied.. “We interact with the public continuously. We are also doing research on policy and also on technology.”
Powell said that the Fed has yet to determine whether a CBDC is an innovation that is even needed in the United States, adding that the central bank is not in the “stage of making real decisions”.
He described the development of a CBDC as in an early experimental phase, adding that the technology will take years to evaluate. However, Powell indicated that a CBDC could be quickly released to the public if Congress decides to, saying, “I think we can get this into the hands of the public very quickly.”
The Federal Reserve Bank of New York previously participated in an experiment simulating how a tokenized dollar might work among financial institutions, launching a pilot program last November that included firms like BNY Mellon and Citi.
Powell added that the Federal Reserve may not need written approval from Congress to establish a CBDC, at least for financial institutions, and explained that a “wholesale” CBDC could be valid for settling transfers between banks and other financial institutions.
“We’ve always been talking about a retail CBDC, and that’s something we would certainly need congressional approval for,” Powell said. “There are potential forms of a wholesale CBDC that we should look into. It’s less clear.”