In a May 28 letter to Senator Tom Cotton (R-AR), Jerome Powell, Chairman of the U.S. Federal Reserve, described an interest reference rate based on the Ethereum blockchain, called Ameribor, as effective for some, but not all. 

Ameribor is a tool from American Financial Exchange (AFX) that uses the Ethereum blockchain to track interbank lending by minting ERC-721 tokens for each repayment. 

The Fed Chair responds on overall interest reference rates 

After a Banking, Housing and Urban Affairs Committee hearing in February, U.S. Senator Cotton sent questions over to Chairman Powell. The senator referenced Powell's mention of a move away from using LIBOR — an averaged interest rate based on data from a number of London banks.

Cotton also noted banks' desires for a reference rate other than LIBOR-alternative SOFR — a nocturnal interest rate between banking entities — with potential for credit-sensitivity thrown into the mix. "Is Ameribor appropriate to use for institutions for whom it more accurately represents their cost of funding?" Cotton detailed in his inquiry submission. 

Powell explains Ameribor's value to Senator Cotton 

"The Federal Reserve convened and supports the work of the Alternative Reference Rates Committee," or ARRC, Powell explained in the letter answering Cotton's question. In terms of the Fed's outlook, SOFR is a sound option outside of LIBOR, Powell said. Although SOFR is not a panacea, Powell urged for a move to a rate other than LIBOR, depending on individual entities' needs.  

AFX's Ameribor takes into account a number of market dynamics, Powell noted. The rate functions in line with parameters set by the International Organization of Securities Commission, or IOSCO. 

Powell explained:

"While it is a fully appropriate rate for the banks that fund themselves through the American Financial Exchange or for other similar institutions for whom Ameribor may reflect their cost of funding, it may not be a natural fit for many market participants." 

Powell has visited a number of Cointelegraph headlines in 2020, including his explanation of digital dollar printing alongside physical dollars.