Federal Reserve Chair Jerome Powell said stablecoins are a type of private money and need to be regulated as such.
During a panel discussion about
"The central bank is and will always be the main source of trust behind money. Stablecoins essentially borrow that trust from the underlying issuer, and in many cases, these are dollar stablecoins, so they're really borrowing that trust," he said. "These are private forms of money. They will be subjected to runs if their reserves are not full of very high-quality assets, so there's a regulatory job to be done there."
Because these assets are being used in transactions across the country — and, in many cases, across borders — it should be the Fed's duty to supervise these issuers, Powells said.
"I would liken it to what happens with the dual banking system here where there's a very important role for state regulators but … for any commercial bank in the United States there's also a role in licensing that bank to operate at the Fed or another federal agency," he said. "In the case of this, which is money creation, we think it really should be the Fed that does play that role."
Powell participated virtually in the panel discussion, which was part of the Banque de France's conference on the opportunities and challenges of tokenized finance. Christine Lagard, president of the European Central Bank, Augustin Carstens, general manager of the Bank for International Settlements, and Ravi Menon, managing director for the Monetary Authority of Singapore, also participated in the event.
During the hourlong conversation, Powell noted that investments in stablecoins behave like money market funds in some ways and deposits in others, both of which are heavily regulated by the Fed. Still, because stablecoins are public-facing and could be perceived to be public money, specific regulatory frameworks are appropriate, he said.
Powell said the Fed would look to Congress to pass legislation on the matter, but he shared some principles he would like to see incorporated into a stablecoin regulation framework.
"The reserves need to be … transparent to the public, and they need to consist of the kind of credit assets that will always be there when there's a need to fund withdrawals," he said. "Otherwise, the infrastructure will be run-prone, and we saw that in the last few months."
Central bank digital currencies, or CBDCs, were also discussed during the panel. Lagarde noted that the European Central Bank's digital euro project is in its prototype phase and in roughly one year the central bank will decide whether to move forward on a full implementation throughout the eurozone.
"We are certainly not ahead of the game because the [People's Bank of]
She said the European Central Bank is prioritizing convenience of use for its prototype CBDC, but added there are notable risks, such as a digital euro crowding out traditional banks. She said the central bank is working to ensure its financial system remains intermediated and that banks continue to play a key role in it.
Powell said while the Fed is exploring the idea of a digital dollar closely, he does not anticipate a decision being reached "for some time." He also cited intermediation as one of four baseline requirements for a U.S. CBDC, should one be created. It would also have to be privacy protected, identity verified — stripping away the anonymity offered by private digital currencies — and easily transferable or interoperable with other payment systems.
A digital dollar, once a fringe idea, has
Powell said the Fed will need approval from both the executive branch and Congress to move forward on implementation, which has emerged as a
"We see this as a process of at least a couple of years where we're doing work and building public confidence in our analysis and in our ultimate conclusions," Powell said, "which, as I say, we certainly haven't reached yet."
