Fed Chair Powell: Want to regulate, not ban, cryptocurrencies

Key Takeaways:

  • Federal Reserve Chief Jerome Powell testified before the House Finance Services Committee.
  • In response to a question, the Fed chief clarified his stance on cryptocurrencies.

NEW DELHI (CoinChapter.com) — Jerome Powell, chairman of the Federal Reserve, said the Fed is not looking to issue a China-Esque ban on Bitcoin, stablecoins, and other cryptocurrencies. He also disclosed that the Fed is mulling over issuing digital dollars.

Mr. Powell commented on a House Financial Services Committee meeting on Thursday. It was the second time this week the Fed Chair, along with Treasury Secretary Janet Yellen, was testifying before Congress.

The US central bank is pondering a decision regarding issuing its digital currency and the way forward regarding private stablecoins and cryptocurrencies in general.

What The Fed Chair Said

Mr. Powell’s comments came in response to the Republican Representative of North Carolina Ted Budd’s question. The representative quoted Mr. Powell’s July comments on Stablecoins before asking, “Is it your intention to ban or limit the use of cryptocurrencies, as we see in China?

In July, the central bank chief had said that stablecoins and other cryptocurrencies would become obsolete once digital USD became a reality.

Also Read: China’s crackdown on crypto could backfire, leading to more decentralization, says executive.

In response, Jerome Powell clarified he was referencing only stablecoins and not all cryptocurrencies. He went on to say he had no intention to ban cryptocurrencies, but as stablecoins are similar to money market funds, there’s a need for regulation.

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

Jerome Powell in response to Rep. Ted Budd.

Stablecoins like Tether (USDT) are digital assets whose prices are pegged to a fiat currency. However, in a July hearing, the Fed’s top regulator voiced concerns that the USDT isn’t backed by the US dollar in a bank but by a mix of dollars and other assets, including commercial papers.

As such, Mr. Powell highlighted that during a crisis, the market disappears, and that is when ‘people will want their money.’. Regulations, the Fed chief believes, will help safeguard investors’ interests. Accordingly, the central bank authorized several research papers looking into the pros and cons of issuing a Central Bank Digital Currency (CBDC).

CBDCs are a virtual format of fiat currency that often has blockchain at its core. However, while decentralization is a key concept behind cryptos, central banks or governments regulate CBDCs.

Other Updates From Congress Hearing

The hearing also included Treasury Secretary Janet Yellen, who defended a controversial proposal to have banks report account inflows and outflows to the IRS. The proposal aims to crack down on tax evaders, a revenue-raising measure for the government’s $3.5 trillion reconciliation bill.

Recommended: The US Debt Ceiling Fiasco: What does it mean for crypto markets?

Republican representatives of Tennessee, Indiana, and South Carolina all questioned Treasury Secretary on the plan, terming it as an invasion of privacy for their constituents.

Mrs. Yellen defended the proposal saying bank inflow and outflow data would give IRS better clarity on unpaid tax regulations. Moreover, she claimed, it would save low-income households from expensive, inconvenient audits.

Additionally, she said the IRS already gets a significant amount of information through bank reporting, and the new data points would exclude details of specific transactions.

Regarding the high level of inflation in the US, the Fed chief said the levels are likely to fade by next year. However, he assured that if inflation were to rise to unsustainable levels, the Fed would hike rates to bring it under control.

The Fed is keeping its short-term interest rate low to boost employment. However, lower rates can allow inflation to worsen. As such, the Federal Reserve is struggling with its dual goal of full employment and stable prices.

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