During a press conference with the Senate Banking Committee on Wednesday, Federal Reserve Chairman Jerome Powell answered the question of whether or not the Fed’s potential CBDC would preclude the existence of privately issued stablecoins. “No, not at all,” Powell clarified.

Jerome Powell – Chairman of the Federal Reserve

It would make more sense to coexist stablecoins and compete with the Fed’s digital dollars. When the CBDC hits the market, it will take away the monopoly advantages that government-issued fiat normally enjoy in the economy.

If investors prefer to use private stablecoins instead of the Fed’s CBDCs, it would undermine many of the traditional monetary policy operations that central banks use to manipulate money supply, control inflation, and control inflation, as well as adjusting economic growth.

Powell’s remarks seem to suggest that regulatory stance on privately issued stablecoins is surprisingly calm following the July 2021 claim. At the time, he said that investors “… didn’t need stablecoins, you wouldn’t need cryptocurrencies if you had US digital currency.”

The Fed is expected to release its highly anticipated crypto report in the coming weeks, which will provide clarity on the upcoming CBDC.

Why are stablecoins gaining attention?

Stablecoins are an important aspect of cryptocurrencies. These are currencies of stable value that are used by investors as an “off-point” to buy and sell volatile cryptocurrencies without having to deposit and withdraw funds from financial institutions. main can take many days.

The market size of this asset class makes it an increasingly popular topic in the financial world as well. As of January 2022, CoinMarketCap will list at least 56 active stablecoins based on algorithms, cryptocurrencies and fiat.

Among them, fiat-backed stablecoins like Tether’s USDT, Coinbase’s USDC, and Binance’s BUSD made up the largest share, accounting for a total market cap of $ 137 billion. These are also stablecoins that regulators have kept an eye on due to their decentralized nature and that are far superior to the algorithmic or crypto-backed coins operated by anonymous DeFi developers.

The increased regulatory scrutiny of stablecoins is likely due to concerns about their ability to sustain them. In theory, stablecoins like USDT are hedged 1: 1 against USD. However, the fact that Tether’s backing assets are invested in a wide variety of financials raises questions about the validity of the backing assets.

In a November Treasury report, regulators signaled a clear intention of regulating stablecoins along the lines of the traditional financial system.

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