- While the Fed has been coy on whether or not it intends to launch its own digital dollar, akin to China’s digital yuan, the central bank and other U.S. financial regulators have previously said that stablecoins require more regulation and ought to be issued by banks.
- Stablecoins have been indispensable to cryptocurrency traders, providing a way to trade in and out of other digital tokens quickly and easily, but a Fed-issued digital dollar may provide a significant challenge to their ubiquity.
“Why can’t we be friends, why can’t we be friends, why can’t we be friends, why can’t we be friends?”
– Why Can’t We Be Friends by Smash Mouth, off the album of the same name, Copyright Interscope Records 1997
Perhaps we can, at least according to U.S. Federal Reserve Chairman Jerome Powell who revealed that there is room for privately-issued stablecoins to exist alongside a possible central bank digital currency.
While the Fed has been coy on whether or not it intends to launch its own digital dollar, akin to China’s digital yuan, the central bank and other U.S. financial regulators have previously said that stablecoins require more regulation and ought to be issued by banks.
To be sure, there is well-established precedent and practice when it comes to commercial banks issuing their own currency.
Hong Kong for instance has long used commercial banks that issue promissory notes to function as local currency given the special status of the territory.
And in the U.S., wildcat money issued by wildcat banks during the 19th century helped to fill a gap when the country had no national banking system.
At Powell’s confirmation hearing before the Senate Banking Committee, top Republican Senator Pat Toomey asked whether anything would preclude a “well regulated, privately issued stablecoin” from coexisting with a potential digital dollar, Powell said, “No, not at all.”
Stablecoins have long served as a halfway house for cryptocurrency traders, with the largest and most liquid being Tether or USDT.
And while most cryptocurrencies have suffered the slings and arrows of outrageous volatility in since bitcoin hit an all-time-high of close to US$69,000 last November, the fortune of stablecoins has only continued to grow, with inflows advancing.
Tether has seen its market cap of USDT steadily rise to US$78 billion, while Circle’s USDC is now the fifth largest cryptocurrency by market cap, pushing out smart-contract blockchain Solana to round off the top five, according to data from CoinMarketCap.com
Stablecoins have been indispensable to cryptocurrency traders, providing a way to trade in and out of other digital tokens quickly and easily, but a Fed-issued digital dollar may provide a significant challenge to their ubiquity.
A recent report from the U.S. President’s Working Group on Financial Markets argued that Congress should give financial regulators greater authority and oversight mandates that would subject stablecoin issuers to bank-like rules.
