Following a public comment on the topic of currency alignment, Federal Reserve Chair Janet Yellen has been on the record as saying that the technology behind stablecoins “needs greater regulation.” While this may seem to be a disagreement on what the Fed should be doing, Yellen’s comments, while vague, do at least underscore the crucial role of regulation in the broader stability of the cryptocurrency market.
The latest comments from Federal Reserve Chair Jerome Powell, in which he states that he believes that some stablecoins could be at risk of being used as money laundering tools, has caused a shockwave in the cryptocurrency community.
Fed Chairman Jerome Powell told the House of Representatives today that stablecoins should be subject to stricter regulation, similar to money market funds or bank deposits.
Rep. Anthony Gonzalez (R-OH) asked Powell a specific question about Tether, which is currently the most expensive steblecoin. Tether claimed that each coin was backed by a dollar, but this turned out not to be true; instead, they are usually backed by commercial paper or debt. Powell said that in most cases these assets are highly liquid, but that this was not the case during the recent financial crisis. He stated:
The market just disappears. And that’s where people want their money. It’s very simple: These economic activities are very similar to bank deposits and money market funds and should be regulated in a similar way.
Powell went on to say that if stablecoins are to be part of the payment system, there needs to be a regulatory framework, as there is currently no regulatory framework for stablecoins.
He also added that he does not see volatile crypto assets becoming part of the payment system in the future. Crypto assets were listed in a 75-page monetary policy report released last Friday. You only quote one sentence that is mentioned in relation to risky investments:
The sharp rise in prices of various crypto assets also partly reflects the increased risk appetite.
Representative Stephen Lynch (D-MA) said the central bank’s digital currency, or CBDC, will reduce the number of crypto currency launches:
You wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a US digital currency. I think this is one of the strong arguments in his favor.
Powell said a paper will be published in September on the benefits and risks of establishing a CBDC in the United States.
Asked about the record high inflation in the United States, he said it has risen sharply and is likely to remain high in coming months before moderating.
Related: Bitcoin bounces off $33,000 support as U.S. dollar inflation comes back to the fore.
Powell reiterated his earlier statements that the rise was temporary and that things would likely return to normal once some markets, such as… B. Used cars, back to pre-pandemic conditions.
Powell will speak tomorrow before the Senate Banking, Housing and Urban Affairs Committee.
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