Hearings | Powell Blocks Crypto Bank Applications, Emphasizes Coexistence of CBDC and Stablecoins, Crypto Report to be Released Soon

During the reappointment hearing that the Federal Reserve Chair attended, besides signaling a slowdown in rate hikes and balance sheet reduction, other key points discussed included the upcoming cryptocurrency report, progress on central bank digital currencies (CBDC), and obstacles facing crypto banks.

Cryptocurrency Report

The highly anticipated cryptocurrency report from the Federal Reserve was originally expected to be released during a hearing, but Chairman Jerome Powell stated that the report is in its final stages of preparation and is expected to be published in the coming weeks, mentioning that he does not want to address this issue repeatedly.

This cryptocurrency report is expected to mainly cover topics such as central bank digital currencies (CBDCs) and digital dollars. Powell pointed out that the report will not provide a comprehensive answer to all parties involved and will be more like a document offering the authorities' views on public concerns.

CBDC as Stablecoin Killer?

U.S. Republican Senator Pat Toomey raised questions related to CBDCs to Powell, expressing opposition to the Federal Reserve handling retail financial accounts and also not wanting the launch of CBDCs to lead to the crowding out of stablecoins pegged to the U.S. dollar. Powell expressed agreement with these concerns.

Toomey inquired:

Assuming Congress authorizes the Federal Reserve to issue a central bank digital currency (CBDC), would there be regulations that restrict the coexistence of regulated private stablecoins with CBDCs?

Powell indicated that there would be no issues with stifling stablecoins. In fact, Powell's views on stablecoins have been somewhat contradictory in the past. On July 14 last year, he stated, "If you have a digital dollar, you don't need stablecoins, and you don't need cryptocurrencies." However, on October 1 of the same year, he softened his stance, stating that he has no intention to ban cryptocurrencies and stablecoins but emphasized that stablecoins need appropriate regulatory oversight.

Blocking Crypto Banks

For the cryptocurrency industry, Powell's denial of applications from crypto banks may be the most controversial aspect. Despite established exchanges like Kraken and the Wyoming-based crypto bank Avanti obtaining Special Purpose Depository Institution (SPDI) bank charters, the Federal Reserve rejected the application for a "master account."

According to reports, even after obtaining an SPDI charter, crypto banks still need to establish a master account with the Federal Reserve to settle transactions with other banks, Federal Reserve branches, and other financial institutions. Senator Cynthia Lummis believes that the Federal Reserve's actions in blocking this are unfair.

Powell responded:

The Federal Reserve has been studying SPDI applications, but hasty approvals could lead to rapid expansion of the SPDI model and have broader implications on the financial system. Crypto banks are a first in history, so we need more time for deliberation.

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