Powell emphasizes the federal role in stablecoin regulation, CBDC not in near-term plans

Federal Reserve Chairman Powell called for strengthened regulatory oversight of stablecoins during his congressional testimony, emphasizing the central bank's important role in stablecoin issuance. Powell also dismissed recent plans to directly issue a central bank digital currency (CBDC), highlighting that the issuance of CBDC will consider ways to protect individuals' financial privacy and will not replace the existing financial system.

Powell Emphasizes Importance of Federal-Level Regulation

Jerome Powell, the Chair of the Federal Reserve, stated during his testimony before the House Financial Services Committee on Wednesday that:

We do think of stablecoins as a form of money. In all advanced economies, the ultimate backstop for the value of money is the central bank. We think that in this context, the central bank should have a strong and robust federal role.

Powell emphasized that having a strong federal role in the future development of stablecoins is appropriate, and allowing state-level regulation and the proliferation of private currencies due to a lack of federal oversight would be a mistake.

Cryptocurrency Bills to Be Amended in July

Two cryptocurrency-related bills currently under discussion include:

• The stablecoin bill introduced by the House Financial Services Committee in mid-April, which focuses on establishing a federal framework for issuing stablecoins to ensure legitimate pathways for issuers and grant federal financial regulators authority to address related issues.
• The Digital Asset Market Structure and Investor Protection Act introduced by Republicans in early June, which aims to establish a functional framework to provide regulatory certainty for digital asset companies and address the hotly debated topic in the crypto industry of whether digital assets are commodities or securities.

Major stablecoin players like Circle in the U.S. support the creation of a new framework for stablecoin issuers. Fintech companies, especially payment providers, have long complained about the lack of a single registration required to operate nationwide and the need to register as financial service providers in each state.

Republican Representative Patrick McHenry from North Carolina, the chair of the Financial Services Committee, expects debates and votes on the stablecoin bill and the Digital Asset Market Structure bill in the second week of July.

No Immediate Plans for CBDC Implementation

In addition, Powell negated the possibility of the Federal Reserve directly issuing a digital dollar to the American people during his congressional testimony. He stated that the central bank has a long way to go in terms of issuing a central bank digital currency (CBDC) and emphasized that the issuance of CBDC would uphold financial privacy and not replace the existing financial system.

Powell further pointed out:

We are not in favor of individuals having accounts at the Federal Reserve. If we were to reach a point in the future where we thought a CBDC would be appropriate, it would be done through the banking system, not directly within the Fed system.

This method mirrors the current operation of the financial system, where the central bank issues currency, and individuals access the currency through bank accounts, with all KYC-related processes managed by banks, without the direct involvement of the central bank. This aligns with the principle of the majority of CBDC frameworks utilizing a wholesale and retail dual-layer model.