Yesterday during Congressional testimony, Federal Reserve Chair Jerome Powell clarified that the Federal Reserve has no plans to ban stablecoins but does intend to regulate them.
Congressman Tedd Budd inquired about testimony from Powell during a July Congressional hearing in which Powell stated, “You wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital US currency.”
Budd asked, “As a matter of policy, is it your intention to ban or limit the use of cryptocurrencies like we’re seeing in China?”
To which Powell responded, “No. And I immediately realized I’d misspoken there. Take the word cryptocurrency out of that sentence and I would say it’s fairly widely understood that central bank digital currency could perform some of the… make stablecoins less…” At which point, Budd interrupted him.
“No intention to ban,” said Powell.” Stablecoins are like money market funds, they’re like bank deposits, but they’re to some extent outside of the regulatory perimeter and it’s appropriate that they be regulated. Same activity, same regulation.”
This reiterates the stance he took during the July Congressional and Senate hearings. While many focus on the backing assets that support stablecoins, the digital currencies also drive crypto lending platforms. In some (but not all) cases, this represents a consumer protection risk. Crypto lending also has the side effect of fueling the growth of cryptocurrencies. Hence legislative stablecoin restrictions could simultaneously enhance consumer protection but also slow down the progress of cryptocurrencies.