Following a Senate hearing last week, Powell responded to follow-up questions from the Banking Committee’s leading Republican, Pat Toomey, on the same day that the Federal Reserve published its initial impression on a US-centric central bank digital currency.
Toomey inquired as to whether private alternatives, especially existing stablecoins, could serve as a check on a CBDC. While Powell hedged on the value of stablecoins, he did maintain that they should be able to coexist alongside an as-yet tentative CBDC:
“One critical question is whether a CBDC would yield benefits more effectively than alternative methods. These alternative methods could include improvements to the existing U.S. payment system. Alternative methods could also include well-designed and appropriately regulated stablecoins. Well-regulated, privately issued stablecoins could coexist with a CBDC. In the future, it is possible that CBDCs, stablecoins, and other forms of money could serve different needs or preferences. It is important for all forms of money to be well-designed and appropriately regulated.”
The conversation about federal stablecoin regulation is happening alongside the one on CBDC. Many progressive members of Congress, including Banking Committee members like Sherrod Brown and Elizabeth Warren, have suggested that CBDC could be most useful as a replacement for private operators. Even back in spring 2020, the initial draft from the Democrats of the Covid stimulus package included provisions for direct “FedAccounts,” which the public would access through post offices.
Conservatives are typically fond of neither the USPS nor direct Fed access to the public.
Conservatives in Congress like Toomey and advocacy groups like the Digital Dollar Project have spent the subsequent 21 months pushing for continued intermediation by commercial banks as well as the continued survival of private stablecoins.
Powell often serves as a vector between the arguments about stablecoins and CBDCs, especially given his role in the President’s Working Group.
In November, the PWG put out a report on stablecoins urging Congress to act quickly on a federal regulatory scheme, a sentiment that Powell reiterated in these more recent responses.
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