There has been a fight between the Federal Reserve and the cryptocurrency market for a while now. This has been evident from the comments from Fed officials on the need to regulate stable coins.
Investors in the cryptocurrency breathed a sigh of relief after Jerome Powell, the Chair of Federal Service, announced that the US has no plans to ban stable coins.
He clarified his previous comments where he remarked that people would not need stable coins or cryptocurrencies if they had digital US currency. He equated stable coins to money market funds and bank deposits but insisted on the need for regulations.
Powell is not the only Treasury official insisting on the need for stablecoins regulations. Janet Yellen, the treasury secretary, recently stated that stable coins should be regulated under a strict framework.
Finance officials in the US have been keen on ensuring that the stable coin runs under government regulations. Early this year, Yellen had a meeting with the President’s Working Group, and the meeting was towards setting eCurrency rules to help monitor stable coins.
In response to Powell’s announcement on Thursday, cryptocurrencies suddenly jumped on Friday. Some investors have been holding back because of the fear that the government will ban stable coins. For that reason, after the free pass by the Chair of Fed, people were now free to invest in Bitcoins and other cryptocurrencies hence the jump.
Why Fed Chair Is Pushing for Stablecoins Regulations
Following the comments of Powell on Capitol Hill, it is clear that he does not support the existence of stable coins. During a congressional hearing, the Chair revealed that they are launching a central bank digital currency (CBDC).
In addition, lawmakers and central bankers in the US have not been happy with the continuous growth of stable coins.
However, despite their expression of discontent, the stable coins have been growing day by day. People are using stable coins to make payments, and private and public organizations are buying the idea.
This growth is scary to Powell and central bankers because they do not have a say in the operation of these coins. It will be a big blow to the government if unregulated digital currencies overtake fiat currency. For this reason, the Fed officials are working around the clock to ensure that they get a hold on the operations of stable coins.
To insist on the need for regulation, Powell reveals that public money is treated as a safe asset in the US. Therefore, they will not continue to allow stable coins to operate in an unrestrained manner.
Stablecoins vs. CBDC
The Central Bank Digital Currency (CBDC) is the hypothetical digital dollar. The central bank will fully regulate it. The Fed decided to create the CBDC as a rival to stable coins. However, the Fed doesn’t understand that stablecoins are not popular because they are digital currencies but because they are free from the regulators of the bankers and government.
Stablecoins are cryptocurrencies that peg their value to an asset like the US dollar. They came by to meet the demand for an easier way to make international payments. In addition, they do not operate under the central bank regulations.