Jerome Powell, chairman of the Federal Reserve of the United States (Fed) told the House of Representatives today that stablecoins should face stricter regulations similar to money market funds or bank deposits.
Powell was asked specifically about Tether (USDT), currently the most valuable stablecoin, by Representative Anthony Gonzalez (R-OH). Tether claimed that each coin was backed by a dollar, but that has been proven false. Rather, it is backed mostly by commercial paper or debts. Powell said most of the time those assets are very liquid, but during the recent financial crisis that wasn’t the case. He explained:
"The market just disappears. And that’s when people will want their money. It’s very simple: These are economic activities very similar to bank deposits and money market funds, and they need to be regulated in comparable ways,”
Powell went on to say that if Stablecoins are going to be a part of the payment universe, then regulations need to be put in place, as a regulatory framework currently “doesn’t exist, really, for stablecoins.”
He also added that he doesn’t see volatile crypto assets as being a part of the payment universe in the future. Crypto assets were mentioned in the 75-page Monetary Policy Report released last Friday. The call out was merely a single sentence, mentioned in the context of “risky assets” saying:
“The surge in the prices of a variety of crypto-assets also reflects in part increased risk appetite.”
Rep. Stephen Lynch (D-MA) said a Central Bank Digital Currency, or CBDC, would cut down on the number of cryptocurrencies being launched:
“You wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital U.S. currency. I think that’s one of the strong arguments in its favor.”
Powell said a paper that focuses on the benefits and risks associated with a CBDC in the US will be out sometime in September.
He also responded to a question about the record inflation rates the US is experiencing, saying they have “increased notably and will likely remain elevated in coming months before moderating.”
Powell stood by his previous statements that the increase is temporary and that once certain markets, like used cars, are back to pre-pandemic conditions, it will likely return to normal.
Powell will be speaking before the Committee on Banking, Housing and Urban Affairs of the Senate tomorrow.