“Stablecoins Need Stricter Regulation,” Fed Chairman Jerome Powell States

Stablecoins should face stricter regulations similar to money market funds or bank deposits – this is Fed Chairman Jerome Powell’s opinion before the House of Representatives.

The reason for Powell’s statement was a series of questions the House of Representatives asked Powell. Tether (USDT) was a prime objective in the hearing, as it turned out the stablecoin leader lacks the 100% pegging to the U.S. dollar. In contrast, Tether is primarily backed by commercial paper and debt.

Powell replied to Rep. Anthony Gonzalez (R-OH)’s question by noting that under normal circumstances, Tether, as well as other stablecoins, do not suffer liquidity problems, but the latest financial crisis proved that stablecoins can also suffer from lowered liquidity.

"The market just disappears. And that’s when people will want their money. It’s very simple: these are economic activities very similar to bank deposits and money market funds, and they need to be regulated in comparable ways,” Powell noted.

Fed’s Chairman continued on by stating if stablecoins are going to be included in payment schemes, the sector needs clear regulations, as currently such framework “doesn’t exist, really, for stablecoins.”

Powell also included cryptocurrencies, as he noted that due to their volatility, cryptos are far from considering them a viable option in the payment universe. Meanwhile, cryptocurrencies found their place in the Federal Reserve Monetary Policy Report from July 9, 2021, claiming the assets are “risky”.

“The Surge in the prices of a variety of crypto-assets also reflects in part increased risk appetite.,” the report notes.

Meanwhile, a Central Bank Digital Currency, or CBDC, would cut down on the number of cryptocurrencies being launched, according to Rep. Stephen Lynch (D-MA).

“You wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital US currency. I think that’s one of the strong arguments in its favor,” Lynch added.

In response to Lynch’s comments, Powell explained that a risk assessment document for the benefits and threats behind launching a CBDC would be made public in September.

Powell also got his head under the crosshairs for the record inflation rates in the US. Inflation, according to Powell, “increased notably and will likely remain elevated in coming months before moderating.”

The Fed Chairman, however, noted that once certain markets, like used cars, for example, go back to their pre-pandemic state, the United States would experience a drop in inflation rates.