Powell warns of ‘crypto dollar’ risks and proposes to regulate ‘stablecoins’

Jerome Powell warns of crypto dollar risks and proposes to regulate stablecoins

Regulators are increasingly concerned about cryptocurrencies, and Fed Chairman Jerome Powell warned in his speech on Wednesday that the first measures may be just around the corner. In a section of his statement before Congress, Powell spoke about the risks of ‘stablecoins’, cryptocurrencies whose value is tied to the dollar, with tether as the most famous of the group; and left the door open to create an official cryptocurrency.

Speaking of the possible dangers that the dollar faces, the banker advocated regulating this type of cryptocurrency tied to the ‘greenback’, since “in theory they fulfill the same function as money markets or other assets.” Its lack of regulation is behind the suspicions that the company that issues this cryptocurrency uses it to manipulate the markets and, in particular, the price of bitcoin. The New York Prosecutor’s Office has been investigating their operations for years, and a few months ago it accused them of fraud.

Powell commented that cryptocurrencies with a value pegged to the dollar should be regulated like bank deposits and that their issuers should comply with the same conditions as other financial companies. Precisely, last May, Tether acknowledged that only 4% of the reserves with which it supports the 60,000 million ‘pseudo-dollars’ in circulation are in cash, while the rest are, for the most part, invested in corporate debt to the short term of doubtful value.

On the other hand, the Fed president also announced that this September they will publish a report on the viability of issuing an official ‘crypto dollar’ backed by the central bank itself, as the ECB is already considering. Even so, Powell acknowledged that implementing this type of currency carries risks for the economy, since it could reduce the role of banks in the economy and leave them without the liquidity that deposits represent, among others.

Still, Powell left the door open to that possibility. “There will be no need for private cryptocurrencies if the Fed issues one,” he argued. Specifically, he recognized that the speed of payments and transfers offered by ‘stablecoins’ and exchange houses – not so much bitcoin – are competitive advantages to which they have to adapt. Even so, he made it clear that “I do not see a risk to the position of the dollar” as the dominant currency in the global financial ecosystem.