Digital Dollar or Stablecoin The Fed Has Conflicts, But They Don’t Like Bitcoin

Editor of this issue | Colin Wu

Editor of this issue | Colin Wu

1 Regarding CBDC, two officials of the Federal Reserve have expressed positive

On July 14, at a congressional hearing, when Federal Reserve Chairman Powell was asked "if the Federal Reserve launches a central bank digital currency CBDC, would it be better than the current payment system provided by a variety of stable currencies", Powell gave an affirmative answer, “That’s exactly the argument of central bank digital currency proponents, that when you have a digital dollar, you don’t need stablecoins or other cryptocurrencies,” he said.

Powell also said, "For bank deposits and monetary funds, we have a strong regulatory framework, but there is currently no regulation for stablecoins. If they will play a more important role in the payment system in the future-we don't think encrypted assets will To play a role in the payment system but stablecoins have this possibility-then there must be an appropriate regulatory framework for stablecoins.”

A member of the Federal Reserve, Lael Brainard (Lael Brainard) has also expressed similar views to Powell. At the Consensus 2021 conference held by Coindesk on May 24, Brainard delivered a [speech](1), saying that the Federal Reserve is accelerating research on CBDC and cannot lag behind in competition with other countries' CBDCs. She also said that if stablecoins are allowed to develop and become more and more widely used, it will bring huge risks to the US payment system.

2 Federal Reserve Vice Chairman Qualls is conservative on the launch of CBDC

Brainard's speech was on May 24, and more than a month later, Fed Vice Chairman Randal K. Quarles expressed the exact opposite view. Based on time considerations, Quarles His speech can even be seen as a response to Brainard.

In [Speech] (2) on June 28, Qualls said that the US currency system is already very complete. If the stable currency that already exists on the market can play more roles in the payment system, then considering the launch The risks and benefits of the Federal Reserve's digital currency may not be necessary to develop its own CBDC at all. "In my opinion, we don't need to be afraid of stablecoins. The Federal Reserve has always supported responsible private sector innovation."

Qualls believes that more evaluation is needed for the United States to launch a CBDC. And even if the CBDC is to be launched, it is destined to be a long process. Qualls mentioned that there are two ways to promote the CBDC. One is to provide accounts directly by the Federal Reserve, and the other is for users to open accounts in third-party institutions. Somewhat similar to Alipay and WeChat in China. Either way, legislative support is needed.

Currently, there are five members of the Federal Reserve Board of the United States. In addition to Chairman Powell, there are two vice-chairmen Richard Clarida and the above-mentioned Randall Qualls. Lyle Brainard and Michelle Bowman.

The other two officials of the Federal Reserve, Vice Chairman Clarida and Commissioner Bowman, have not yet publicly expressed their views on CBDC. It can be seen that even within the Federal Reserve, there are huge disputes about CBDC. Powell said that he remains open to this issue, and the Federal Reserve is also conducting research and will release a research report on CBDC in September this year.

3 The regulation of stable currency is bound to be strengthened

Regardless of whether the Fed will launch a CBDC in the future, the regulation of stablecoins will be further strengthened. If the Federal Reserve does not launch a CBDC in the future according to the vision of Vice Chairman Qualls, but the stable currency in the market will assume the function of the CBDC, then the regulation of the stable currency will be strengthened to prevent the risks that Brainard is worried about. What's more, as the vice chairman, Qualls is in charge of supervision.

If the Federal Reserve launches CBDC in the future, the supervision of stablecoins competing with CBDC will obviously be strengthened. Powell’s speech at the hearing this time also brought new regulatory pressure on stablecoins.

In Powell's view, the current stablecoins on the market are similar to "money funds." Monetary funds, on the other hand, fall under the [regulatory category](3) of the SEC. For example, Yu'ebao, the most common in China, is behind the monetary fund, which is supervised by the China Securities Regulatory Commission.

At its inception, Tether claimed that it was backed by $1 for every USDT it issued, and if that was the case, it would not fall under the SEC's oversight. But then Tether changed the terms, and the reserve assets became "dollars and their equivalents." According to the latest asset composition it announced, cash only accounted for 3%, and the rest were commercial paper and government bonds, etc., which is typical. Monetary Fund.

Of course, Tether has never called itself a money fund, but in fact it is, especially when even the chairman of the Federal Reserve thinks so, and it will be difficult to avoid supervision from the SEC in the future.

It is also worth noting that while attitudes towards stablecoins vary, the Federal Reserve seems to be relatively negative towards cryptocurrencies such as Bitcoin. Powell said: SPAC is over, we see the value of bitcoin go up and down, sometimes it feels like a bit of a frothy market, really worried about that. We need to focus on the real economy, employment and financial stability. And Qualls said, "Bitcoin's main additional appeal is its novelty and anonymity. Anonymity will make it an appropriate target for increasingly comprehensive scrutiny by law enforcement, and novelty is a quick asset to waste. Therefore, Bitcoin and its ilk will almost certainly remain a risky speculative investment rather than a revolutionary payment method.” (Head image from skyboundwealth)

[1]:https://www.federalreserve.gov/newsevents/speech/clarida20200831a.htm

[2]:https://www.federalreserve.gov/newsevents/speech/quarles20210628a.htm

[3]:https://www.sec.gov/spotlight/money-market.shtml