WASHINGTON — Federal Reserve Chair Jerome Powell clarified that the central bank is not seeking to eliminate private-sector stablecoins and other types of cryptocurrencies as the Fed mulls whether to issue its own digital dollar.
Testifying with Treasury Secretary Janet Yellen in Congress for the second time this week, Powell was asked about earlier comments
“I immediately realized that I'd misspoken there," Powell told the same committee Thursday, adding that the central bank has "no intention to ban” stablecoins or other cryptocurrencies as part of its internal deliberations.
The hearing also featured Yellen's continuing to defend a plan that would require banks to report customer account flows to the Internal Revenue Service, and her warnings that Congress's failure to raise to the debt limit would have serious ramifications for financial markets.
“Anyone who borrows would see higher interest costs of their debt" if the U.S. defaults, Yellen said.
The Fed is currently working on a report expected to signal whether the agency intends to move forward with issuing its own digital currency, as well as what the central bank thinks of private stablecoins in general.
While a digital dollar would not be intended to supplant existing stablecoins, Powell stressed the need to regulate the crypto sector.
“Stablecoins are like money-market funds, are like bank deposits, but they’re to some extent outside the regulatory perimeter, and it’s appropriate that they be regulated," he said. "Same activity, same regulation.”
Meanwhile, GOP
Republican Reps. David Kustoff of Tennessee, Trey Hollingsworth of Indiana, and William Timmons of South Carolina all pressed Yellen on the plan, claiming it amounted to an invasion of privacy for their constituents.
“I have to tell you: the proposal that has been put forth about expanding the amount of information that the IRS is going to get on private bank accounts, has been something I've been asked about at parks, at grocery stores, and convenience stores around the district,” said Hollingsworth. “This has people deeply afraid about the emergence of an apparatus that can be used against them.”
Yellen continued to defend the plan, saying that having bank account inflow and outflow data would give the IRS a much more accurate picture of unpaid tax obligations and lower the chance that low-income households are subject to expensive, onerous audits.
“I don’t believe it’s an invasion of privacy," Yellen said. She added that data on specific transactions would not be included in the new data points and that the IRS already gets a significant amount of information through bank reporting.
But much of the hearing was focused on the debt ceiling. Earlier this week, Yellen told the Senate Banking Committee that the Treasury Department could begin to default on its obligations as soon as Oct. 18th without congressional action to raise or suspend the debt ceiling.
On Thursday, Yellen argued that “anyone who borrows” could be adversely impacted by a debt ceiling breach. She also stressed that markets could be impacted even before the debt ceiling is actually reached, as they did in 2011.
“As we saw in 2011, when the debt ceiling was raised at the absolute last minute, and investor and consumer confidence was shaken in the run-up, we saw a marked increase in interest rates, a marked drop in the stock market,” Yellen said.
House Democrats made clear in remarks throughout the hearing that raising the debt ceiling and avoiding a government default was a top priority.
“Even now, Republicans are threatening to throw the economy into unnecessary turmoil by blocking legislation to suspend the debt ceiling,” said House Financial Services Chair Maxine Waters, Calif., said in her opening remarks. “It is completely unacceptable for Republicans to hold our nation's economy hostage, especially in the middle of this continuing public health crisis.”
Republicans, meanwhile, expressed indignation that Democrats and the Biden administration had only recently begun to reach out to them about a potential bipartisan agreement to raise the debt ceiling.
“I’ve been a part of every single debt ceiling increase for the last decade, every fiscal consequence of Congress,” said Rep. Patrick McHenry, R-N.C., the committee's top Republican, in remarks addressed to Secretary Yellen.
“I've been a part of the solution for last decade, and the call that I received from you last week was the first outreach I've had from this administration to do something on a bipartisan basis,” McHenry said, “and you called me to raise the debt ceiling — not with a plan, not for a fiscal plan, not for my buy-in, but simply for my vote.”
