Stablecoins Need To Be More Strictly Regulated: FED Chair

Stablecoins need to be more strictly regulated as the FED Chair Jerome Powell said during his speech on CBDCs and stablecoins to the congress so let’s find out more in our latest cryptocurrency news.

Fed Chairman Jerome Powell told Congress that stablecoins need to be more strictly regulated incomparable way to bank deposits and money market mutual funds. Powell said that stablecoin should also be treated like bank deposits. A stablecoin is a kind of crypto pegged to the price of the physical currency like the US dollar. The idea is that the peg keeps the price of the coin stable and grants traders some of the flexibility and transparency of crypto without being volatile.

Rep. Anthony Gonzales asked Powell about Tether which is the most valuable stablecoin and the one that faced the most scrutiny over the business practices of the backing company.
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While Tether once claimed that each coin is backed by the real dollar, sitting in a bank somewhere, it is disclosed that most of the backing comes from commercial paper or debts. Powell said:

“Commercial paper are short-term overnight obligations from companies, and most of the time they’re investment grade, most of the time they’re very liquid, it’s all good.  But during recent financial crises, 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 was before the House Financial Services Committee to deliver his report on monetary policies that involve both a prepared statement and responses to questions from lawmakers. He said:

“We have a tradition in this country where the public’s money is held in what is supposed to be a very safe asset.  ]If they are going to be a significant part of the payments universe, which we don’t think crypto assets will be, but stablecoins might be, then we need an appropriate regulatory framework, which frankly we don’t have.”

The battle between Tether and NYAG ended in a settlement recently with Tether and Bitfinex being fined $18.5 million. During the recent hearing, Powell commented on the potential development of a CBDC or central bank digital currency which is something the FED equivocated. Powell also suggested that the development of the state-controlled digital dollar system could obviate the need for private cryptos.