By Michael Scott
The Federal Reserve chair Jerome Powell affirmed that payment stablecoins are money forms though emphasized that the central bank is the credible source.
Powell Considers Central Bank, a Critical Player to Oversee Stablecoins
Powell’s statement on Wednesday, June 21, emphasized the critical role the Central bank should undertake in overseeing stablecoins. He considers stablecoin a sizable crypto space segment that legislators should devote to craft oversight rules.
Powell stated that cryptocurrencies such as Bitcoin have staying power. He made the pronouncement when addressing the semiannual hearing regarding monetary policy. The House Financial Services Committee convened the hearing under the leadership of Republican politician Patrick McHenry (R-NC).
Payment Stablecoins Represent a Money Form Necessitating Central Bank Oversight
Powell was tasked by Democrat Maxine Waters (CA) on stablecoins oversight. He responded by exercising strong federal leadership over the technology involved in the private issuance of tokens whose value is pegged to sovereign currency prices such as the dollar.
Powell restated that payment stablecoins are money forms whose oversight should be the responsibility of credible regulators. He added that the central bank is a credible source of money across all advanced economies. He restated the Federal Reserve (Fed) needs to assume a robust role in the developments undertaken within the stablecoins segment.
Stablecoins to Register in States
Waters questioned Fed’s stance if stablecoin issuers opt to register with the states. The Democrat expressed concern that the Fed would become hamstrung to act in such situations. Given the provision of such options in the draft stablecoin legislations proposed in various states, he cited such a possibility.
Powell decries that excluding Fed from exercising oversight over the tokens’ landscape would be erroneous, considering they are dollar collateralized. Such provisions would erode the Fed’s role to weaker levels while leaving substantial money creation by private entities to state regulators.
Regulate Stablecoins Just as Bank Deposits and Money Market Funds
Powell restated the previous pronouncements he submitted before a Congressional hearing in 2021 that stablecoins warrant strict regulation. The Fed Chair emphasized subjecting stablecoins to stricter regulation that would replicate the treatment of bank deposits and money market funds.
Powell defined stablecoin as crypto pegged to an equivalent exchange price of a fiat currency unit, often the US dollar. Stablecoin deploys a simplistic idea that the peg value ties the coin price to a stable unit. The stability grants the traders assured flexibility and transparency closer to the peg value, thereby averting price volatility.
Republican Leadership in Congress Positive of Consensus in Stablecoin Bill
Powell submitted in 2021 to Congress that stablecoins are poised to play a critical role in the payments ecosystem, unlike other crypto assets. He added stablecoin regulation should mirror the approach adopted for the money market, mutual funds, and bank deposits.
Several bills have been tabled to resolve the stablecoin regulation Powell addressed the Congress in 2021. The majority of the attempts stalled. McHenry is optimistic that if lawmakers can resolve the proposed changes in July, the bill will advance to the Senate. Such is possible only when lawmakers can reach a positive consensus.