Jerome Powell Comments on Stablecoins at the Senate Banking Committee Hearing

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During his testimony to the Senate Banking Committee yesterday, Federal Reserve Chairman Jerome Powell expressed confidence in the strength of the U.S. economy and maintained that a recession is not yet a guaranteed outcome.  However, in light of rising inflation and slowing growth, Powell admitted further interest rate hikes for the next few months are likely and this will cause stress to the economy and general population.  Despite these remarks, the markets were not highly reactive to the hearing as Powell had echoed many of his statements from last week's FOMC press conference.  

There were a number of other topics addressed during the hearing that fall outside the central bank’s authority–namely the price of gas and digital assets.  While the Fed is not responsible for the macroeconomic machinations that determine gas prices, Powell was able to explain the causes behind rising costs and how it is outside of bank policy to control. He did similarly regarding digital assets when approached with the subject of stablecoins.  

Undoubtedly, the committee and other members of congress have had stablecoins and cryptocurrencies high on their agenda following the latest crash.  Powell’s comments on stablecoins and digital assets seemed to reiterate what many in federal agencies already know: a regulatory framework for these cryptocurrencies can only be set by Congress.  When asked by Chairman Sherrod Brown (D-Ohio) about how stablecoins differ from fiat currency, Powell compared stablecoins to money market funds.  As a requirement, money market funds operate with absolute transparency on what reserves are held, but given that “the world of stablecoins is new and emerging” and without a regulatory framework, there are no requirements on how or if they maintain valuation with fiat currency.  

For now, the engagement between the Fed and digital assets like stablecoins remains very limited.  The purview of the Fed includes banks, bank holdings, and how they manage those holdings.   As interest from the public has increased, banks have begun exploring the world of cryptocurrencies and stablecoins as an offering to their customers.  Powell revealed that in the onset of such interest, the Fed has had numerous discussions with the FDIC and OCC with regard to these digital assets.  In the absence of oversight and directory, Powell commented that the Fed and other agencies will continue to engage with crypto space as it fits into their perceived jurisdiction, but stressed that it is not a substitute for congressional action.