Fed’s Powell urges broader regulation for stablecoins

Sep 27, 2022, 6:52 AM | Updated: 7:49 am
FILE - Federal Reserve Board Chairman Jerome Powell speaks during a conversation with leaders from ...

FILE - Federal Reserve Board Chairman Jerome Powell speaks during a conversation with leaders from organizations that include nonprofits, small businesses, manufacturing, supply chain management, the hospitality industry, and the housing and education sectors at the Federal Reserve building, Friday, Sept. 23, 2022, in Washington. Powell said that stablecoins will need greater regulation as they become more widely used by consumers. Powell delivered his virtual remarks Tuesday, Sept. 27, to a conference on digital finance in Paris. (AP Photo/Manuel Balce Ceneta, File)

(AP Photo/Manuel Balce Ceneta, File)

WASHINGTON (AP) — Federal Reserve Chair Jerome Powell said Tuesday that stablecoins will need greater regulation as they become more widely used by consumers.

Powell also said, in virtual remarks to a conference on digital finance in Paris, that the Fed hasn’t yet decided on whether to proceed with a digital dollar.

The Fed’s sharp interest rate increases this year, Powell said, have contributed to the collapse of some stablecoins and big drops in the value of cryptocurrencies, a phenomenon some traders have dubbed “crypto winter.” Stablecoins are digital tokens pegged to the value of traditional financial instruments, often the dollar. In May, the stablecoin TerraUSD collapsed, wiping out $40 billion investor funds.

Powell said that higher interest rates have revealed the “significant structural issues” that exist in decentralized finance, a broad term that encompasses stablecoins, crypto currencies, and other new technologies.

Yet the crypto winter had little impact on traditional finance because for now there is not much overlap between the two, Powell said. But that may not continue.

“There’s a real need for more appropriate regulation,” Powell said, as decentralized finance “starts to touch more and more retail customers.”

Earlier this month, in an interview at the Cato Institute, Powell said that anything purporting to be money should be tightly regulated.

“If people are going to think something is money, then it needs to actually have the qualities of money,” Powell said. “If it doesn’t, then I don’t think you want to take money and make it into just another consumer product where sometimes it fails and sometimes it’s good.”

Powell also sketched out a cautious path for the United States on the creation of a so-called central bank digital currency, or digital dollar. Digital currencies differ from current forms of electronic money because they would be issued by central banks such as the Fed, rather than a bank.

More than 100 central banks around the world are considering a digital currency, but just a few have actually issued one.

Powell said the Fed is “evaluating both the policy issues and the technology issues” around a digital dollar.

“We have not decided to proceed and we don’t see ourselves as making that decision for some time,” he said. “We see this as a process of at least a couple of years where we’re doing work and building confidence in our analysis and in our ultimate conclusions.”

That would put the United States behind many other countries when it comes to a central bank digital currency. China has already tested a digital yuan in some provinces.

Powell also said the Fed would need approval from the White House and Congress to proceed with a digital dollar.

Christine Lagarde, president of the European Central Bank, also spoke virtually to the conference and said the ECB plans to decide within a year whether to start developing a prototype of a digital euro.

Central banks provide key backing for currencies, and that makes them much more stable than private money, Lagarde said.

“If we are not in that game, if we are not involved in experimenting, in innovating, in terms of digital central bank money, we risk losing the role of anchor that we have played for many, many decades,” she said.

Earlier this month, the Treasury Department issued a report that recommended the U.S. work on developing a digital dollar.

Also this month, Michael Barr, the Fed’s top financial regulator, said that the central bank should work with other agencies and Congress to toughen oversight of stablecoins.

“Stablecoins, like other unregulated private money, could pose financial stability risks,” Barr said. “History shows that in the absence of appropriate regulation, private money is subject to destabilizing runs, financial instability, and the potential for widespread economic harm.”

Copyright © The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

AP

Associated Press

Closing prices for crude oil, gold and other commodities

Benchmark U.S. crude oil for January delivery rose 96 cents to $77.24 a barrel Monday. Brent crude for January delivery fell 44 cents to $83.19 a barrel. Wholesale gasoline for December delivery was unchanged at $2.33 a gallon. December heating oil fell 2 cents to $3.22 a gallon. December natural gas fell 31 cents to […]
14 hours ago
Associated Press

Attorneys: ‘Botched’ execution caused pain and torture

MONTGOMERY, Ala. (AP) — Alabama prison staff strapped an inmate to a death chamber gurney, despite a court order in place at the time blocking the execution from going forward, and later subjected him to numerous needle jabs, including in the neck and collarbone region while an official held his head, attorneys wrote in a […]
14 hours ago
FILE - Joseph Percoco, a former aide to New York Gov. Andrew Cuomo, arrives at federal court for hi...
Associated Press

Supreme Court sympathetic to group convicted in NY scandal

WASHINGTON (AP) — The Supreme Court seemed ready Monday to side with a onetime top aide to ex-New York Gov. Andrew Cuomo and others convicted of corruption related to an upstate economic development project dubbed the Buffalo Billion. Both liberal and conservative justices seemed sympathetic to the group over approximately two and a half hours […]
14 hours ago
Associated Press

Pennsylvania county deadlocks on certifying election results

WILKES-BARRE, Pa. (AP) — Officials in a northeastern Pennsylvania county where paper shortages caused Election Day ballot problems deadlocked Monday on whether to report official vote tallies to the state, effectively preventing their certification of the results. Two Democratic members of the Luzerne County Board of Elections and Voter Registration voted to certify, both Republicans […]
14 hours ago
FILE - In this May 30, 2017, file photo, St. Anthony police officer Jeronimo Yanez stands outside t...
Associated Press

Court: Cop who shot Castile wrongly denied teaching license

MINNEAPOLIS (AP) — The Minnesota Court of Appeals ruled Monday that a state board must reconsider its rejection of a substitute teaching license for the former police officer who shot and killed Philando Castile in 2016. Jeronimo Yanez applied to be a substitute teacher in 2020, but his application was denied based on “immoral character […]
14 hours ago
Associated Press

Officials: Oxford Schools never implemented safety policy

OXFORD, Mich. (AP) — Policies and procedures that could have prevented a mass shooting that left four students dead at a Michigan high school last year were approved earlier but never implemented, two former school board officials said Monday. Tom Donnelly and Korey Bailey, who recently resigned as Oxford Community Schools’ board president and its […]
14 hours ago

Sponsored Articles

(Desert Institute for Spine Care photo)...
DESERT INSTITUTE FOR SPINE CARE

Why DISC is world renowned for back and neck pain treatments

Fifty percent of Americans and 90% of people at least 50 years old have some level of degenerative disc disease.
(Photo via MLB's Arizona Fall League / Twitter)...
Arizona Fall League

Top prospects to watch at this year’s Arizona Fall League

One of the most exciting elements of the MLB offseason is the Arizona Fall League, which began its 30th season Monday.
...
SCHWARTZ LASER EYE CENTER

Key dates for Arizona sports fans to look forward to this fall

Fall brings new beginnings in different ways for Arizona’s professional sports teams like the Cardinals and Coyotes.
Fed’s Powell urges broader regulation for stablecoins