Today was Jerome Powell’s renomination hearing, during which he spoke on CBDCs, stablecoins, and inflation.
Chairman of the Federal Reserve Jerome Powell seems to have altered a prior opinion on the link between CBDCs and stablecoins. He stated, when testifying before the US Congress, that both may coexist without the former supplanting the latter.
Powell raised the prospect of a Federal Reserve-issued CBDC at his Tuesday renomination hearing. Republican Senator Pat Toomey — a well-known crypto enthusiast – questioned if the presence of “well-regulated, privately issued stablecoins” would be prohibited by a Fed-issued CBDC. “Not at all,” Powell said.
This is a marked shift away from Powell’s previous year’s hawkish stance on stablecoins. In July, he argued that the fundamental purpose of a CBDC would be to eliminate the need for crypto – including stablecoins. Nonetheless, Powell has no intention of outright banning other cryptocurrencies, distinguishing the US regulatory approach from that of China.
Nonetheless, stablecoins are a popular subject of discussion among authorities at the moment. During a hearing last month, business executives and members of Congress expressed divergent views on the topic. While the industry views stablecoins as a necessary component of the financial system, Maxine Waters warned they may pose a danger to the US currency. Stablecoins, some believe, may potentially be considered as securities.
Additionally, there are concerns regarding the practical usefulness of privately produced stablecoins in the absence of a CBDC. The issuing of a CBDC, on the other hand, seems to be a long way off. Powell has already suggested that he would prefer to “get this well” than “doing it quickly,” allowing Tether, Pax, and USDC to continue operating in its absence.
Within the next several weeks, the Fed intends to produce a study examining the benefits and drawbacks of CBDC implementation.
Combating Inflation
The hearing’s most often mentioned issue was inflation, which has been the Fed’s main focus since November’s near-40-year highs. Powell said that with inflation far over goal, the economy “no longer requires or desires the very accommodating policies that we have been pursuing.”
The chairman has reiterated that the Fed’s priority would be to raise interest rates as quickly as feasible to address the problem.
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