Chairman of the Federal Reserve Jerome Powell spent much of yesterday testifying in front of the US Senate Banking Committee as part of his nomination process. It is anticipated that Powell will easily be approved by the Committee as well as the full Senate for a second term of running the Fed.
While much of the conversation revolved around rising inflation concerns and Fed policy, Powell was asked several questions about digital assets or the crypto ecosystem.
Senator Pat Toomey, a supporter of Fintech innovation, posed a question about central bank digital currency (CBDCs) or a digital dollar. Toomey inquired as to whether or not the Fed is positioned to become a retail banker for America – something some industry followers have suggested or supported. Powell indicated he did not believe that will be an outcome. Toomey also inquired about a potential digital dollar and whether or not this would preclude private stablecoins. Powell was clear in his response that stablecoins should be able to exist alongside a possible CBDC.
Jeremy Allaire, founder and CEO of Circle – issuer of the dollar-based stablecoin USDC, commented on Powell’s statement. Allaire said:
“… Dollar Stables [stablecoins] and future CBDCs will co exist. We agree. But let’s get behind the digital dollars that are here and competing to be currencies of the internet…today…not years from now.”
While many people see stablecoins as just another crypto-asset, others position stablecoins as a new form of payment rails that improve upon the existing private services by offering lower friction transfers and less costly payments. It is common knowledge that Circle has been working the halls of Capitol Hill and other regulators to forward this perception.
Stablecoins may become the norm and not the exception when it comes to payments and transfers, what is missing is a well-defined regulatory criteria – something Circle has been working on openly and behind closed doors.
One other area that Powell addressed was the topic of Wyoming-chartered special purpose depository institutions (SPDIs). Senator Cynthia Lummis pushed Powell on the Feds’ status on SPDI review. Powell cautioned that a declaration on SPDIs will be “hugely precedential” and once we start granting these, “there will be a couple of hundred of them.” Lummis indicated she has been waiting over a year for direction from the Fed in regards to SPDIs.
While SPDIs may work with traditional assets, the expectation is that SPDIs will likely focus on digital assets, such as virtual currencies, digital securities, and digital consumer assets.