Federal Reserve Seeks ‘Robust’ Oversight of Stablecoin as Form of Money, Powell Says

Federal Reserve Board’s View on Payment Stablecoins

Chair Jerome Powell stated during questioning at the House of Representatives Financial Services Committee’s semi-annual hearing on Fed policy on June 21 that the Federal Reserve Board of the United States views payment stablecoins as a type of currency.

In response to Committee Ranking Member Maxine Waters’ inquiry as to his opinion of the proposed stablecoin bill (which was initiated by the Republicans and would be the first crypto legislation passed in the United States if successful), Powell gave his comments.

Waters informed Powell that the bill would generate “58 distinct permits with federal regulatory endorsement only for two of the permits.” The other permits would be granted by states, territories, and other territories, which she stated “takes state preemption to a whole new degree.” Powell replied.

He warned that it would be unwise to permit a lot of private money to be generated at the state level.

Powell’s commentary on the draft bill was in opposition to the views of SEC Chair Gary Gensler, who declared during a Senate Banking Committee hearing last year that stablecoins may necessitate registration and regulation, and has consistently declared that all cryptocurrencies other than Bitcoin (BTC) are securities.

Lawyers state that the answer to the question of whether stablecoins are securities is not straightforward.

Powell’s stance does not fit with the statement of Commodity Futures Trading Commission (CFTC) chair Rostin Behnam that stablecoins will be considered a commodity. Although there is no clear-cut Federal Reserve definition of money, it is generally regarded as a medium of exchange. According to American law, commodities are “goods and articles […] and all services, rights, and interests […] that are currently or will be traded in future contracts”. The definition of security is much more complex.

Potential Risks of Unstablecoins

In an editorial in The Hill on June 21, former CFTC Chair Chris Giancarlo commented on the bill, noting that all licensing authorities would have the capacity to prevent stablecoin protocols from offering services to businesses that are lawful yet politically unpopular. He termed this as a “glaring omission” that could lead to a government policy similar to Operation Choke Point under the Obama administration. Giancarlo stated:

Giancarlo commented that, if not, stablecoin transactions will be alarmingly dependent on the ever-changing political climate of Washington.

Magazine: Potential Risks of Unstablecoins Include Depegging, Bank Runs, and More.