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Powell says a Fed digital currency could undercut need for cryptocurrencies

Federal Reserve Chair Jerome Powell on Wednesday (Jul 14) said one of the stronger arguments for the US central bank to set up a digital currency is that it could undercut the need for private alternatives such as cryptocurrencies and stablecoins.

Powell says a Fed digital currency could undercut need for cryptocurrencies

Representations of cryptocurrencies Bitcoin, Ethereum, DogeCoin, Ripple, Litecoin are placed on PC motherboard in this illustration taken, on Jun 29, 2021. (Photo: REUTERS/Dado Ruvic)

NEW YORK: Federal Reserve Chair Jerome Powell on Wednesday (Jul 14) said one of the stronger arguments for the US central bank to set up a digital currency is that it could undercut the need for private alternatives such as cryptocurrencies and stablecoins.

Asked during a congressional hearing if having a digital currency issued by the Fed would be a more viable alternative than having multiple cryptocurrencies or stablecoins emerge in the payments system, Powell said he agreed.

"I think that may be the case and I think that’s one of the arguments that are offered in favour of digital currency," Powell said during a hearing before the US House of Representatives Financial Services Committee. "That, in particular, you wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital US currency - I think that’s one of the stronger arguments in it’s favour."

Fed officials will be broadly examining the digital payments universe in a discussion paper that could be released in early September, Powell said. He described it as a key step that accelerates the Fed's efforts to determine if it should issue its own digital currency.

Powell said he was sceptical that crypto assets would become a main payments vehicle in the United States but said stablecoins might gain more traction. However, he said more regulation is needed before stablecoins could take on a bigger role in the financial system.

"We have a pretty strong regulatory framework around bank deposits, for example, or money market funds," Powell said. "That doesn’t exist currently for stablecoins, and if they’re going to be a significant part of the payments universe - which we don’t think crypto assets will be but stablecoins might be - then we need an appropriate regulatory framework."

Source: Reuters

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